Constitutionalists and free-market economists claim that the idea that every high school graduate is entitled to a government-subsidized loan to attend a $30,000-a-year university is fiscally maniacal. But unfortunately, it’s also a fiscal reality that has propelled college graduates into financial Armageddon.
Indeed, U.S. student-debt outstanding exceeded $1 trillion last year – according to new estimates released by the Consumer Financial Protection Bureau (CFPB) – potentially leading to further delays in home-buying and, in turn, an extended impasse on the housing recovery. CFPB student loan ombudsman Rohit Chopra, for instance, asserts that "first-time home-buyers are a substantial part of the housing market," and "instead of saving for a down payment, these borrowers are sending big payments every month."
Bankruptcy attorneys are observing firsthand the calamitous rise in student loan debt, as a recent survey conducted by the National Association of Consumer Bankruptcy Attorneys found that 81 percent of bankruptcy lawyers disclosed that the number of prospective clients holding such debt has inflated "significantly" or "somewhat" in the last three to four years.
The student debt debacle, which some experts are labeling the "next debt bomb," involves a coterie of malefactors. On the surface, the culprits entail a stale economy, rising interest rates, and persistently high unemployment. Moreover, CFPB officials contend that such debt is rising because young Americans are returning to college simply to avoid the anemic labor market. These seem to be the logical – and more politically safe – explanations.
But despite what Washington’s entitlement-touting bureaucrats attest, that’s not the end of the story. It encompasses a much more complex plotline.
Predictably, government deserves much of the blame, as its intervention in the higher-education market has spawned a seemingly irreversible distortion that has led to increased tuition costs, and consequently, a monumental rise in student loan debt.
Liberal professors and Occupy Wall Street protesters neglect to realize that their entitlement-based ideology – which affirms that "every American is entitled to a Harvard degree" – is the transgressor.
Similar to the third-party-payer system that is now rattling the fiscal status of American healthcare, the federal government has bolstered its authority in subsidizing tuition costs, as students accumulate bulky government loans to finance their education. This reformed system distorts the high school graduate’s motive to pursue the most competitively-priced schools, prompting many students to select institutions charging $40,000 a year for tuition.