# Universities control access to federal student loan funding

Markdown copy of https://realalpha.app/s/universities-control-access-to-federal-student-loan-funding/ on Real Alpha, the best minutes from long interviews with the people building AI. Cite and link the page, not this copy.

- Speaker: [Marc Andreessen](https://realalpha.app/people/marc-andreessen/) · Marc Andreessen is an entrepreneur, investor, co-creator of Mosaic, co-founder of Netscape and Andreessen Horowitz. · Co-founded Netscape and co-created Mosaic, then co-founded a16z, a venture firm backing AI, crypto and frontier tech.
- Host: [Lex Fridman](https://realalpha.app/people/lex-fridman/) · Host, Lex Fridman Podcast · Robotics and AI researcher at MIT; started the show in 2018.
- Show: Lex Fridman Podcast
- Episode: [Marc Andreessen: Trump, Power, Tech, AI, Immigration & Future of America | Lex Fridman Podcast #458](https://realalpha.app/v/OHWnPOKh_S0/), Jan 26, 2025
- Moment: 59:29 to 1:03:01 of the episode (4 min), playing on https://realalpha.app/s/universities-control-access-to-federal-student-loan-funding/; the episode from there: https://realalpha.app/v/OHWnPOKh_S0/?t=3569

## Quote

> “The **incumbents are in complete control** as to who gets access to federal student loan money.”
> — [Marc Andreessen](https://realalpha.app/people/marc-andreessen/) at [1:01:29](https://realalpha.app/v/OHWnPOKh_S0/?t=3689) · Lex Fridman Podcast

## Takeaways

1. Accreditors are approved by the Department of Education.
2. Existing universities shape the accreditor system.
3. Without loan eligibility, new universities struggle to compete.

## About this segment

Marc Andreessen says existing universities control the accreditors that decide who can use federal student loans. That gatekeeping makes it difficult to start a competing institution.

From “Marc Andreessen: Trump, Power, Tech, AI, Immigration & Future of America | Lex Fridman Podcast #458”, Jan 26, 2025. [Watch the full episode](https://realalpha.app/v/OHWnPOKh_S0/)

## Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

[59:34](https://realalpha.app/v/OHWnPOKh_S0/?t=3574) this particular person and others who hear this what can give them strength inspiration and courage that the population at large is going to realize the corruption in their industry and it's going to withdraw the funding. It's okay. It's a desperation. No, no, no, no, no. Think about what happens next. Okay. So let's go through it. So the universities are funded by four primary sources of federal funding. The big one is the federal student loan program, which is in the many trillions of dollars at this point and only spiraling way faster than inflation. That's number one. Number two is federal research funding, which is also very large. And you probably know that when a scientist at university gets a research grant, the university rakes as much as 70% of the money for central uses. Number three is tax exemption at the operating level.

[1:00:20](https://realalpha.app/v/OHWnPOKh_S0/?t=3620) which is based on the idea that these are non-profit institutions as opposed to, let's say, political institutions. And then number four is tax exemptions at the endowment level, which is the financial buffer that these places have. Hypothetically, anybody who's been close to a university budget will basically see that what would happen if you withdrew those sources of federal taxpayer money. And then for the state schools, the state money, they'll instantly go bankrupt. And then you could rebuild.

[1:00:47](https://realalpha.app/v/OHWnPOKh_S0/?t=3647) then you could rebuild because the problem right now and you know like the folks at university of austin are like mounting a very valiant effort and i hope that they succeed and i'm sure i'm cheering for them but the problem is you're you're now inserting you suppose suppose you and i want to start a new university and we want to hire all the free thinking professors and we want to have the place that fixes all this practically speaking we can't do it because we can't get access to that money i'll give you the most direct reason we can't get access to that money uh we can't get access to federal student funding do you know how universities are accredited uh for the purpose of getting access to federal student funding, federal student loans. They're accredited by the government, but not directly, indirectly. They're not accredited by the Department of Education.

[1:01:22](https://realalpha.app/v/OHWnPOKh_S0/?t=3682) Instead, what happens is the Department of Education accredits accreditation bureaus that are nonprofits that do the accreditation. Guess what the composition of the accreditation bureaus is? The existing universities. They are in complete control. The incumbents are in complete control as to who gets access to federal student loan money. Guess how enthusiastic they are about accrediting a new university. Right. And so we have a government funded and supported cartel that has gone, I mean, it's just obvious now it's just gone like sideways and basically any possible way it could go sideways, including, I mean, literally, as you know, students getting beaten up on campus for being, you know, the wrong religion. They're just wrong in every possible way at this point. And it's all in the federal taxpayer back. And there is no way, I mean,

[1:02:07](https://realalpha.app/v/OHWnPOKh_S0/?t=3727) my opinion, there is no way to fix these things without replacing them. And there's no way to replace them without letting them fail. And by the way, it's like everything else in life. I mean, in a sense, this is like the most obvious conclusion of all time, which is what happens in the business world when a company does a bad job is they go bankrupt and another company takes its place, right? And that's how you get progress. And of course, below that is what happens is this is the process of evolution, right? Why does anything ever get better? It's because things are tested and tried and then the things that are good survive. And so these places have cut themselves off. They've been allowed to cut themselves off both from evolution at the institutional level and evolution at the individual level, as shown by the just widespread abuse of

[1:02:46](https://realalpha.app/v/OHWnPOKh_S0/?t=3766) tenure. And so we've just stalled out. We built an ossified system, an ossified centralized corrupt system. We're surprised by the results. They are not fixable in their current form.