B-Schools: September 2012

Congress should consider allowing students to discharge loans in bankruptcy and require schools to do more to protect student borrowers from taking on risky loans. These are two of the conclusions of the first government study (PDF) of the $150 billion private student loan market.

The study, mandated by the Dodd-Frank Wall Street reform law and published by the Consumer Financial Protection Bureau and the Department of Education, found that during the economic boom, private lenders sold high-risk student loans to increasing numbers of students, growing that market by $15 billion from 2001 to 2008.

Many of the loans had lax underwriting standards. Minimum credit score requirements were lowered to sell more loans. Often loans were marketed directly to students, bypassing financial aid officers who advise students when they make such decisions. “In many cases, the school could not review the borrower’s financial need, compare it to the loan amount, or even verify that the borrower was enrolled,” the report says. (The report does not point fingers at the business practices of any single lender.)

Many students took out private loans before exhausting all opportunities for federal loans, suggesting that the difference between private and federal loans was unclear to them.

Defaults have gone up steadily. About 850,000 loans—just over 5 percent of all private loans—worth more than $8.1 billion are in default. The government measures defaults by loan, not by student.

“Subprime-style lending went to college and now students are paying the price,” U.S. Education Secretary Arne Duncan said in a statement.

According to the agencies, things have improved after bottoming out in 2008, when the Department of Education essentially bought up the private loan market as part of the massive government bailout. Lending standards have tightened since then, making it harder for lenders to sell loans and pushing them to make it easier for borrowers to repay. In 2011, 90 percent of private student loans had a creditworthy co-signer, compared with only 67 percent in 2008. School financial aid offices now review 90 percent of loans. Both agencies are developing online tools to help students do comparison shopping for loans and understand their obligations.

“Students were yet another group of consumers that were hurt by the boom and bust of the financial crisis,” Consumer Financial Protection Bureau Director Richard Cordray said on a conference call with reporters. “They are now overwhelmed by debt and regret the decision.”

The agencies say they can only go so far in recommending changes to protect students. The rest is up to Congress.

Dwoskin is a staff writer for Bloomberg Businessweek in Washington. Weise is a reporter for Bloomberg Businessweek.

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To the Rescue --- Private Schools For Your Children For Less Than $850 a Year Tuition

Public Schools - Bad Education, Year After Year?

MBA Journal: Busy Season

As I began my third term at INSEAD in January, I started getting serious about the job search. My already crammed calendar had to accommodate more entries: CV workshops, interview training, company presentations, networking events, organized industry treks, and schmoozing with alumni, all with the hope of landing job interviews. For some students, this was a luxury they could afford to miss out on, as they were sponsored by their firms and were not actively looking for new jobs. There were others who were going to be their own bosses, pursuing entrepreneurial dreams. But most of us had to knock on other people’s doors and persuade them to hire us.

Some people had a focused approach to recruitment, and they zoned in on a geographic area or a particular industry. Others flirted with generalist roles that would give them flexibility later on. Some people took the scatter-gun approach, attending nearly every company presentation and sending off applications to just about every company listed on the careers board. I, however, came to business school to do something outside the box. I wanted a role in the tech sector, and I wanted to live in Switzerland.

By April, I was getting nervous. I had sent off a fair number of applications but had interviewed with only two companies. Students were in an interview frenzy; on-campus recruitment had hit its peak (all the consulting interviews were taking place around April). I wondered if I had made the right decision. Should I have applied to consultancy as well? I decided to take a break from it all and go on holiday. Seven days in Morocco provided the perfect distraction. Eating and shopping in Marrakesh’s Djemaa El Fna market, seeing Roman ruins at Meknes, chatting with friendly Moroccans on long train rides, and staying in a traditional riad made for unforgettable memories. The deep forest of Fontainebleau and the pressures of getting a job seemed a million miles away. Not having a job at graduation and waiting for the right one to come along was better than taking a job I didn’t want.

I came back to Fontainebleau as term four was drawing to a close. I had missed the climax of the interviews. Some people landed their dream job. Others didn’t get their dream but settled for something they could accept. And there were those who were disappointed. After getting turned down by a company, these students could ring the “ding” bell and the nearest person had to buy them a drink to help drown their sorrows. No one wants to ring this bell.

Suddenly, at the end of April, I became very busy. Companies were getting back to me about my applications. And I learned something that might come in handy for you: You may be asked about what you write in the extracurricular or hobbies section of your CV, even if it’s karaoke. At a top commodity trading house, I was put on the spot by my interest in karaoke. Indeed, I was asked to sing, and I belted out You’ve Lost That Loving Feelin’. It was certainly a memorable icebreaker.

Among all the companies for which I was interviewing, one stood out as my dream job. I interviewed for a corporate development role in a growing Swiss tech company that develops advanced sensory network and analytic solutions. One of their solutions is a flood warning system on one of the largest rivers in China. I am greatly interested in this exciting area of technology.

I realized I had a lot to offer prospective employers, including professional experience in the field. After all, I had provided financing for this segment of technology during my time as a banker. I had also helped a friend with his startup by providing agriculture analytic solutions. You might also recall that a few months ago I wrote about my experiences forming a smart athletic clothing venture at the INSEAD Entrepreneurial Bootcamp, providing real-time analysis of athletes’ performance. It almost feels like fate that I stumbled upon this opportunity.

So my year here is wrapping up, and come July, I will have earned an MBA. It has been challenging, stimulating, and eye-opening. I have made great friends, landed my dream job, and gained valuable lessons and knowledge. At times, I wish I could have slowed down and enjoyed every moment more—in particular, savoring the final few weeks with friends before we go our separate ways. At other times, I was so hungry for the next stage of life that I wanted to hit the fast-forward button. No need for fast forward anymore. We have reached the end of this film and the start of a new one.

Joshua Jian is a first-year MBA student at INSEAD in Fontainbleau, France. Having always planned on earning an MBA, Jian worked for J.P. Morgan in Hong Kong before enrolling in business school. He says business school will be a journey of self-discovery, during which he will learn what he would like to do besides finance.

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WGU: A Second Chance at College

In 1997 two leaders of the Western Governors’ Association, Republican Mike Leavitt of Utah and Democrat Roy Romer of Colorado, started talking about the need for more alternatives in higher education. Their goal: to help adult students who had dropped out of college before getting their degrees.

The result is Western Governors University (WGU), an online mix of course offerings in health sciences, business, information technology, and teacher education. The concept has been embraced by the six Democrats and 13 Republicans who make up the Western Governors’ Association. Now in its 15th year, the nonprofit WGU, funded entirely by $6,000 annual tuition fees, has awarded nearly 17,000 bachelor’s and master’s degrees.

Current enrollment stands at a little less than 34,000. Students, who average 36 years old, are required to put in at least 20 hours a week but are given six-month “semesters” over which to spread the work. In a 2011 survey, 65 percent of WGU graduates said they received a raise, a promotion, or a new job responsibility as a result of their degrees.

Laura Huish, of Farmington, N.M., had long aspired to become a teacher but couldn’t go back to a traditional college full time because she also had to care for a young child. She discovered WGU while working as a school secretary. “It was perfect. I could work, be with my kid when I needed to, and work at the degree online,” says Huish, who enrolled in 2009. She earned her degree in three years and last year was hired as a full-time teacher at a primary school. “It’s not for everyone,” says Huish. “You have to be motivated.”

Two years ago, Indiana Governor Mitch Daniels issued an executive order creating WGU Indiana, calling it Indiana’s “eighth state university.” The move allowed WGU students from Indiana to apply for loans and other aid. “Governor Daniels had said there were 750,000 Hoosiers who had started college but hadn’t finished, and this could get more of them more credentials for better jobs,” says WGU spokeswoman Joan Mitchell. Indiana has 2,600 students enrolled in WGU, a tenfold increase over just those two years. Texas and Washington have since taken similar steps.

“No one is claiming that this is the same market as Harvard and Princeton,” says Andrew Kelly, an education analyst at the American Enterprise Institute. “But elected officials strapped for public money for education are looking for ways to reap a larger return in innovation, hopefully boosting the earning power of the citizenry.”

Strauss is a Bloomberg Businessweek contributor.

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College Tuition's 1,120 Percent Increase

Schools are investing and building more than ever—and students are paying for it.

Data: Bloomberg; Labor Department

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