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.
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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.
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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.
April 22, 2010
