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Opinion Want to fix the federal student loan system? Kick out scammy schools.

A student studies in a hallway at Houston's Rice University on Aug. 29. (Brandon Bell/Getty Images)

In addition to wiping out a lot of existing student debt, President Biden has changed how loans will (or won’t) be paid back going forward. Unfortunately, his changes don’t address the underlying cause of big, unlikely-to-ever-get-repaid student debt balances: the high cost of college, particularly at scammy schools.

In fact, absent some additional safeguards, these changes might encourage more borrowing and higher tuition.

My inbox has been flooded over the past week with emails from furious people with enormous debt burdens they fear they’ll never escape. Most argue that, if anything, Biden’s plan was too modest and should have wiped out much more debt.

Most of these correspondents have something in common: They attended low-quality for-profit schools.

These are institutions with abysmal completion rates and programs that often don’t pay off even when completed. Those carrying huge debts linked to such programs have been, broadly speaking, ripped off. Many will never be able to pay off their debts. I agree on this: They deserve help from the federal government, in the form of more generous loan forgiveness.

The problem, however: The schools these people attended — in some cases, are still attending — will continue being able to rip off students, on the government’s dime, and to persuade yet more students to rack up yet more debt for all-but-worthless programs. Uncle Sam will again be left holding the bag when these future classes can’t pay.

Everyone likes to point out how expensive top-tier selective universities are, but they’re not the problem. However expensive their (sticker) prices look upfront, they usually do pay off. That is: Their students graduate and earn a decent return on their investment through higher lifetime wages.

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The more problematic schools are the ones where, say, fewer than a quarter of the students complete what’s supposed to be a four-year degree within six years and whose students have high loan default rates and disappointing job-market outcomes. Not all for-profit institutions are bad actors, but they are overrepresented in those ranks: for-profit schools enroll only about a tenth of all students yet account for half of all student-loan defaults.

Students at for-profits also end up borrowing far more than demographically similar students at public schools, partly because two-year for-profits charge, on average, more than $10,000 more in tuition than community colleges do.

Even with poor track records, schools can receive more than 90 percent of their revenue from the federal government through student-linked grants, loans and other payments. Worse, they can get sued many times over for defrauding students and continue receiving public funds. Some of the institutions named in a recent major court settlement involving whether schools misled students are still eligible for federally subsidized financing, as University of Virginia economics and education professor Sarah Turner pointed out to me.

Absent the ability to get government-guaranteed loans, these schools might go out of business. And they probably should! They seem to spend more resources aggressively signing up students than providing them with a valuable education.

Where does Biden’s school financing overhaul fit in?

Biden has revamped the system known as “income-driven repayment” plans. These plans cap monthly payments based on the borrower’s income, with forgiveness of the balance granted after a certain period of time. The concept is good; getting the details right is challenging.

The specific changes Biden made — capping monthly payments at much lower levels and forgiving some balances much sooner — can reduce how much borrowers pay back. But these changes also have some unintended consequences.

Among them, said University of Utah finance professor Adam Looney, is that students will be incentivized to take on much more debt because so much of it might be forgiven. “If people expect to repay, say, $60 on each $100 they borrow (some more, some less) a lot of things change,” Looney said via email. “Previously [the Congressional Budget Office] expected people to repay more than $1 for each $1 they borrowed. So borrowing has been the worst way to pay for college. It will instead be the best way to pay.”

Additionally, schools — particularly those adept at maximizing revenue from the federal aid system — are likely to realize they can raise tuition since students will expect to ultimately pay a lower share of it.

“These schools have already figured it out,” said Meagan Landress, a Student Loan Planner consultant. “There are no incentives to keep tuition low.”

Besides rejiggering some of Biden’s repayment design parameters, there are other things the government can do to reduce these risks. It could force institutions to have some skin in the game (clawback provisions for underperformers, for example). The government could also provide more funding to public postsecondary institutions, particularly those with the strongest track records of graduating low-income students.

But most of all, the government must be choosier about which schools it sends checks to in the first place.