Student Loans: A Bad Deal

Monday 6 January 2014 - Filed under Dumbassery + Economy + Education

More evidence of the obvious: that pumping in billions of free and cheap money in to higher education is directly responsible for both the massive collective student debt of over $1T, as well as for the constant rise in tuition rates that are far above inflation.

As combined student loan debts balloon to over $1 trillion, one economist believes enough is enough — the “tremendously explosive” student loan programs offered by the federal government need to go.

Ohio University economist and chair of Center for College Affordability and Productive Richard Vedder recommends that President Barack Obama and Congress work together to dismantle or greatly shrink the student loan programs that let young Americans rack up debt.

“I would go so far as to say that I think the federal government is more the problem rather than the solution,” Vedder told the Carolina Journal Radio during a Friday interview. “A lot of our problems… come from these tremendously explosive student loan programs and grant programs that the federal government provides.”

Giving 18-year-olds fresh from high school with no financial skills free reign to borrow hundreds of thousands of dollars may not be the best course forward, Vedder said. Colleges flush with easy money spend it on administrative pay and luxury fitness centers, increasing tuition all the while.

“The government is providing fuel for an academics arms race that is going on all over the country by allowing kids to borrow huge amounts of money at very, very low interest rates, and many of these students are really not knowledgeable about finance and so forth,” he continued. “They go out; they borrow a lot of money. The colleges raise their fees more than they otherwise would. This provides extra income for the colleges, which goes for a ton of different things — luxury facilities, more administrators, higher pay for people, and the like — and makes college less affordable.”

This is economics 101, and yet it’s ignored completely. Rather than question the economic viability of getting an English degree or an Art History degree, politicians and the economically ignorant (who tend to be those who have gotten said degrees) blame the rich and a lack of funding. The problem with universities is not that they have a lack of funding, but that they have been funded lavishly over the last 4 decades via exploding tuition enabled by ever growing influxes of free federal cash.

2014-01-06  »  madlibertarianguy