Student Loans Throw Us Further Into Debt

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The logic behind
the government takeover of student loans to college attendees is
a classic case of irrational economics gone wild.

However fascinating
the proponents’ arguments are, the unintended consequences
of this program are what students must pay attention to most. Far
from making college more affordable, this program threatens to destroy
any hope of individuals paying for college with their own savings
or help from their parents. The inevitable result of which will
be the death of private college institutions as well as a bulk of
the taxpayers’ wealth.

Why do students
need enormous loans to go to college in the first place? Could it
be because the government has taken over the education industry?
In California, tuition rates have soared – almost the same
way corporate health insurance premiums have soared – because
our dysfunctional, gerrymandered legislature can’t balance
a budget. At a time when CSUs and UCs are raising tuition to ghastly
heights, many students are wishing there were private colleges that
would come in and compete with the government.

Our state’s
college affordability crisis is really a crystal ball into what
a health insurance public option would look like. At first it would
put private insurance out of business with its low rates, but eventually
the federal government – incapable of paying its bills like
our state – would have to raise everyone’s premiums the
same way Anthem Blue Cross did two months ago in California, and
the same way Cal State Fullerton is doing to us students today.

The student
loan system setup, as it was, allowed banks to lend to students
with the explicit guarantee from the government that if those students
defaulted on the loans, the American tax payer would pay the difference.
The consequences were predictable: Banks lent to just about any
unemployed 18-year-old with no assets without fear of default. It
was a sweetheart deal for bankers, bad for tax payers and raised
the cost of tuition by allowing everyone to pay for college no matter
how insane the costs already were, as it eliminated normal market
forces that would force colleges to compete for students’ money.

Free market
economist Peter Schiff, famous for predicting every last detail
of the housing collapse, and a candidate for Senate in the state
of Connecticut, explained that, “The reason that college tuition
is so expensive is because government has guaranteed loans to make
it easy to borrow money to pay whatever inflated prices universities
want to charge. If students didn’t have access to those government
guarantees, college prices would be falling so that students can
afford to go.”

In a separate
argument, President Barack Obama claimed that banks were serving
as an “unnecessary middleman” when it came to providing
student loans, since banks collected interest. This was downright
laughable, as the same “middleman” argument could be used
when it comes to car loans, home loans and business loans.

the rest of the article

22, 2010

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