Are charter schools the new subprime loans?

What exactly is a subprime loan and how are charter schools related?  According to Investopedia, a subprime loan is a type of loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans. Subprime borrowers are usually individuals with a low credit score, who lenders believe might end up defaulting on the repayment of a loan. These types of loans are set up for individuals who also might be interested in getting cash for title loans, because they might not require a credit check. Subprime loans and charter schools have one thing in common, and that is government backing. Let's take a closer look.

 

Introduction of subprimes and charter schools

Again, subprime mortgages began as a way to give credit to individuals with low incomes to aid in home-ownership. In offering subprime loans to these individuals, lenders provided unfair terms, which were also backed by the government. Competition arose between lenders of the subprime mortgages, leading to an enormous amount of debt and defaults, which affected those who the subprime mortgages were meant to help. Charter schools are similar in that they are set up to help the portion of the population who are considered poor, to gain a better education, while making sure students do not attend an underfunded school. Because the government backs charter schools, most of the risk is taken off of the charter authorizer.

 

New research shows the dangers

A paper was released by researchers from several different universities including the University of Connecticut, State University of New Jersey, Montclair State University, and University of Wisconsin- Madison. The paper described how there is a danger in increasing the number of independent authorizers of a charter school and the increased number of subprime mortgage originators. This promotes unhealthy competition because authorizers don't truly understand how charters work. Instead, they simply thrive when they grant more charters to make more profits, when in reality they are doing nothing to maintain these charter schools. Students are still being deprived of a solid education, while taxpayers use their money to make these authorizers wealthy.

 

Findings from lead researcher

Lead author of this study, Preston C. Green III, went on to explain some of their findings. He claims that those who wish to expand charter schools in low income areas will need an increase in independent authorizers, such as nonprofits and universities. In gaining more authorizers, these people will issue even more charters because they are less hostile places for education.  However, their research found that multiple authorizers don't assume any risk if a charter school fails, and they are not left to clean up the mess. There is a push to increase the number of charters located in areas, primarily populated by African Americans, because of educational dissatisfaction with public schools. It seems as though subprimes and charter schools might go hand in hand in how they are utilized. You can read more of the research on this topic by clicking here.