We all remember the housing bubble and market crash of 2008 – as a result of defaults on sub-prime loans given to potential homeowners with poor credit ratings, a credit crisis erupted, leaving many Americans without homes or jobs.
Prior to the housing bubble of 2008, the housing sector was thought to be one of the most stable financial sectors, as many prioritized paying monthly mortgage bills to avoid losing their homes. However, with government endorsement to increase housing for the poor and minorities, many sub-prime mortgages were approved for people with poor credit scores, leaving them unable to meet their monthly mortgage payments, leaving the banks unpaid.
Almost as quickly as the housing bubble burst, fears and repercussions have seemed to fade away, leaving a naive sense of security among many Americans.
However, the problem may not reside in the housing of many American families, but, rather, the charter schools in which their children attend. Already, Charter school sub-prime default rates have caused alarm. Government legislation to expand charter school education—with little insight into the financial responsibilities of such—have caused many young charter schools with poor credit ratings to default on their mortgages. Yet, still, with government support, they continue to spring up.
How would this lead to another bubble? School authorizers play the role of the bank in charter schools. Government and community urging for better opportunities for students has promoted legislation that will allow for multiple authorizers of charter schools, creating a spread of oversight and control in these schools. In addition, the creation of multiple school authorizers allows authorizers to transfer the risk of school failure or default. This could lead to both failure of original authorizers to take ownership in the success or failure of their school, or, as seen in the housing crisis, decreased incentive to meet mortgage payments, as the risk if a school defaults is spread among authorizers.
Already, default rates are up to 3.3 percent, or $346.9 million in 2015, up from 2.7 percent in 2012. Many of these schools default due to the original authorizer not renewing their loan, due to poor academic performance, such as in the case of 818 charter schools in 2015. As in many of the cases of failed charter schools, the original authorizer can afford to default as they share the majority of the risk with the other authorizers. This has often caused many schools, as in the 818 in 2015, to lead to a default via failure to renew their charter as the original authorizer is not as ‘invested’ in the success or failure of the school.
Charter schools provide education independent from public school districts and they do provide education to millions of students, particularly in poor, urban communities. Not only should the fate of the education of these children rest in the multiple authorizers' hands, but the economic responsibility of paying back these defaults.
However, this is not the case. "We are at the ground zero for the formation of such bubbles".
