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At the U.S. Department of Education, do the names Adam Smith or Milton Friedman ring a bell? Perhaps not.

At the U.S. Department of Education, do the names Adam Smith or Milton Friedman ring a bell? Perhaps not.

Erik Makrush
June 8, 2011

The U.S. Department of Education has released a 450-page document with new rules for the “for-profit higher education sector.”  The agency's intent is to create "gainful employment in a recognized occupation.”  We gather “gainful employment” is governmentese for getting a job. Drug dealing and prostitution are “recognized occupations” – but we digress.

Among the provisions is a rule tying federal aid loans to job earnings for students after they graduate.  Using the standard of what is good for the goose is equally so for the gander, we'd wonder why the news rule wasn't applied to public institutions as well.  Without some balance in its thrust and implementation, this new government regulation could create an unfair playing field among higher education institutions and push students either into more expensive private colleges or into taxpayer-funded public colleges – a clear over-reach of government.

This new rule will not only target for-profit colleges, but the vocational industries that hire these graduates.  If a college is unable to retain students enrolled or if after graduation, the students are unable to find work in the field of their degree, the college suffers negative consequences and ill ratings.

The impetus for the 450 pages is said to be the Obama administration’s concern for the debt students are incurring for their education after high school.  The administration says that students are not earning enough after graduation to repay their loans, that taxpayers are at risk for loan defaults and that the problem lies with the rapidly growing for-profit higher education industry, rather than the economic crisis facing the nation through poor policies and the administration's absurd notions regarding its own debt.

The best method to prevent taxpayers from assuming defaulted student loans is for the feds to get out of the student loan business altogether and let private lending institutions conduct the process.

Too many policymakers have long used government regulation as the solution for everything.  There is another option not being used here, a free-market solution.  Rather than implementing more regulations, there should be less.  Indeed, the for-profit market is perfectly capable of self-regulating. Free markets result in increased competition among colleges and the lending institutions and decrease the cost of the education. This is simple supply and demand -- principles we learn in Economics 101 classes offered at many of the for-profit colleges the administration would like to regulate to death.

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