The concept of federal student loans sounds like a great idea because we all want young Americans to be able to afford an education. This is the thinking that has propelled the various federal student loan initiatives of the last 40 years. These programs, such as Sallie Mae and the Pell Grant program, are well intentioned. However, one of the greatest mistakes we make as observers of government is evaluating the intentions of programs rather than investigating their track record. Sure, subsidized student loans sound like a great “investment” in education, but they have acted as an agitator rather than an aid in the struggle to pay for college.
According to statistics from the National Center for Education Statistics, the average cost of tuition for 4 year schools increased from $924 in 1976 to $19,991 in 2006. That is an increase of over 2,000%! This rise in tuition has occurred in spite of federal efforts to curtail expensive college costs. Ironically, the largest increase in tuition costs occurred after the Feds started subsidizing loans! We have reached the point now where acquiring a student loan from the government is easy. They made it that way because students, unproven borrowers, would have a hard time finding loans in the marketplace. However, now when everyone is granted a loan, colleges can price gauge. Since they are receiving guaranteed money, whether it is from the student or the government, they have no incentive to keep their prices low and competitive. Without federal loans, colleges would not be able to get away with staggering tuition costs; the market would boycott, forcing tuition to lower levels. There is a growing college tuition bubble that will soon pop, as the housing bubble did. Congress pressured banks to make risky loans to unqualified consumers through initiatives like the Community Reinvestment Act, and the Federal Reserve encouraged Predatory Banking with low interest rates. This incentivized consumers to live outside their means and purchase homes they could not otherwise afford. With everyone buying, housing prices skyrocketed and more people owned homes. However, it was only an illusion of wealth. The bubble popped, banks failed, and homes foreclosed. What happens if the college tuition bubble pops? Like we were told that anyone could own a home, we are now told anyone can go to college. Affirmative Action, social norms, and student loan programs pressure academically or financially unqualified students to attend college, take loans, and worry about the debt later. This bears a sobering resemblance to the Housing/Mortgage Crisis. Students owe the government $1 trillion dollars in unpaid student loans. The federal deficit last year was $1.5 trillion dollars. In the grand scheme of things, student loan debt accounts for two-thirds of our federal debt. That is a growing problem which needs to be addressed. If we don’t change course, the bubble will pop, and the state of education in America will resemble the state of the housing market today. Tuition will fall, but there will fewer students, fewer teachers, and a bleaker future for America.
I want everyone to be able to afford college, but it is absurd to encourage people to take out loans that basically render them indentured students. Before the government started subsidizing student loans, it was possible to work your way through college and gradually finance it. Today, with the job market’s anemic state and the high price of tuition, that is impossible. In order to go to college, you need to take loans. This renders us as students saddled with debt. This debt delays life decisions and curtails real economic growth. In a free market, tuition costs would be substantially lower, a public debt burden non existent, and the ability to work through college viable. Sadly, anyone who seeks a change in the student loan system will be slammed by liberals as an enemy of education and the financially less fortunate. This opposition to reason is predictable, but the free market is the only thing that will financially empower students and relieve the public of their debts.
Colin Snell | Burlington College | @SnellColin