In the last few decades, Americans have become accustomed to the boom-and-bust cycle created by speculative investment and lenient lending practices. Typically, these areas of inflated investing are referred to as bubbles, which inevitably pop. We are still enduring the ramifications of the latest bubble in housing, but economists have already begun to identify new bubbles on the horizon. According to many economists and politicians, one of the most dangerous comes from for-profit colleges.

Before we get too far, let’s take a step back and examine how a bubble occurs. The housing market is a good example, as it’s still fresh in our minds. For many years there was real and significant growth in the housing market, and lenders erroneously thought that this growth would continue indefinitely (don’t ask me where they came up with that logic). Eventually the pool of qualified buyers was depleted, so lending agencies began creating “subprime mortgages,” which had a greater risk of default. To make a long story short, prices of homes continued to rise irrationally and the people with subprime mortgages began to default. This led to foreclosures, which flooded the market with homes and drove down prices.

Now that we’ve had our bubble crash course let’s discuss for-profit colleges, because a similar phenomenon is taking place. Companies like DeVry Inc., ITT Educational Service Inc. and Career Education Corp. (note that these our companies, not discrete financial institutions) have been doling out astronomical amounts of student loans in order to get people to enroll in their courses.

This may seem like a good thing on the surface, but the fact of the matter is that many people don’t earn enough after graduation to payback their loans and end up defaulting. Since most people who can afford higher education seek out traditional institutions, these for-profit colleges are now targeting low-income people with increasing regularity, enticing them to take on mounds of debt they simply can’t afford. Many people say that this is because the companies are mass-producing a subpar product simply to pump people through the system and gain revenue—who would’ve imagined?

“Some proprietary schools have profited and prospered but their students haven’t, and this is a disservice to students and to taxpayers,” said Arne Duncan, the Education Secretary for the Obama administration. “And it undermines the valuable work, the extraordinarily important work, being done by the for-profit industry as a whole.”

Last year alone, for-profit colleges brought in $26.5 billion in federal aid funds, compared to just $4.6 billion a decade ago. In recent months, many politicians have made efforts to bring the issue to light, and today the Education Department released a proposed set of regulations to rein in these suspect lending practices. Under the proposed regulations, one of the qualifiers for federal student aid programs is that the college must provide students the tools they need for “gainful employment.” This is obviously a subjective characteristic, so the Obama administration has proposed a formula—using debt-to-income ratio of recent graduates, repayment rate and graduation rate, amongst others—to determine a college’s legitimacy.  If the new rules were to go into effect today, over half of for-profit colleges would have to disclose ungainly loan information.

Surprise, surprise: There is partisan rancor over these new regulations. Admittedly, I don’t know enough about the topic to suggest a better solution, but it’s apparent that something needs to be done. We are still recovering from the last wave of corporate greed and unbridled lending; can’t we at least wait a few years until the same thing brings the economy to its knees once again?

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