Tuesday, May 22, 2012

More Student Loan Heresy

I do believe it's time to have a frank discussion about government involvement in student loans, and about how much of a public good--as opposed to the obvious personal good--higher education is. 
Why am I subsidizing student loans for Harvard kids?

BURKE: Exactly. The burden – and risk – is passed along to taxpayers, including the three-quarters of Americans who don’t hold a college degree (and likely earn less than those who do hold a degree). Taxpayers will be on the hook for $6 billion if the rates are kept low.

BADER: I have no idea why. It never made sense to me even when I was at Harvard. Harvard has a huge endowment, and just hoards it. It’s not mostly for the students. As the Dean of Harvard Law School publicly said then, students are merely “incidental.”

Don’t federal subsidies drive up the price of tuition?

BURKE: Keeping interest rates artificially low will fail to drive down college costs in the long run. Colleges will once again be able to increase costs, and students with easy access to low-interest loans will once again be able to pay. The Obama administration has significantly increased federal involvement in the student loan industry, effectively nationalizing student lending through language buried in Obamacare, by continuing to increase federal subsidies, and by “forgiving” student loans altogether after 20 years on the backs of taxpayers. But these policies only exacerbate the college cost crisis, continuing a vicious cycle whereby college costs rise in tandem with ever-increasing federal subsidies.

BADER: Yes, federal subsidies do drive up tuition. It’s Econ 101: basic economics dictates that conclusion.
Why isn't the so-called "occupy" crowd protesting against these particular 1%-ers that didn't earn their money?  Hm.


mazenko said...

I'm troubled by this issue - as there are many arguments about what is driving the cost of college. Certainly, the idea of subsidized loans gives colleges little incentive to lower costs - and students/consumers are often to blame as they demand more perks in their college experience.

Of course, the push for college degrees is perhaps even worse for individuals and the economy as for-profit colleges and lenders have been only too eager to extend ridiculous lines of credit to people who believe they need a degree, but have little chance of ever reasonably paying off their tens of thousands in debt.

Subsidies are certainly not helping here - but I am uneasy about limiting higher ed to only the upper classes.

Peter Reilly said...

Alan Collinge of studentloanjustice.org has been doing a lot of guest post for me on forbes.com about this issue. His major issue is the restoration of bankruptcy protection for student loans, but I have at least one post on how the loan system drives up costs.