Student Loan Debt Bubble

Via CNBC:

Worried? Americans should be.

Still, acknowledging the problem is perhaps the easiest step. Much more difficult is the question of what to do about it. Not surprisingly, young, heavily indebted grads are calling for forgiveness in full or in part of their student loan burdens. Petitions on advocacy website Change.org include calls for federal student loan interest rates to be capped at 3 percent or eliminated altogether. (Indeed, President Obama is currently among those urging Congress not to allow the interest rate on federally subsidized Stafford loans, which are aimed at low — and middle-class borrowers, to double to 6.8 percent on July 1, matching the rate for unsubsidized loans.)

And yet the trouble with those initiatives, or with forgiving student loan debt in whole or part, is threefold. For starters, the straight mathematics: the losses from any such debt reduction scheme will have to be borne by someone, most likely taxpayers, at a time when government finances are already stretched.

Second is the issue of “moral hazard,” that is, rewarding and implicitly encouraging imprudent behavior rather than punishing it. (Of course, it is easier for the public at large to demand that over-leveraged banks be punished for imprudence than 24-year-olds trying to further their education.)

And third is the question of how to keep future graduates from accumulating a mountain of student loan debt just as large, if not larger, than the one just leveled.

It is this third issue which perhaps is most pressing — and most vexing —and which also offers the most opportunity for innovation. Levying an “education tax,” making college free and assigning students to institutions based on a lottery system? Abolishing “college” altogether for more specialized trade institutions instead, while at the same time requiring a “gap year” of liberal arts prior to entry? Offering high-school grads the choice between student loans or business loans to fund new ventures? These all seem ridiculous, but then so too is our current state of affairs.

Lib’s are constantly tinkering, pandering and promising rather than embracing basic economics. The only way to bring down tuition costs is to stop advocating policies (i.e. easy student loans & grants) that artificially increase demand for college. Any high school student can tell you when demand increases, prices will increase.

As pointed out previously here at MCT:

One way to drive down the cost of college tuition is getting the government out of the business of student loans. Every time government becomes involved in an economic activity, it becomes more expensive. If government student loans are severely limited and Universities see fewer students attending their hallowed halls of higher learning, cost of tuition will drop in a hurry.

Otherwise, tuition will keep climbing and people like Mary Sue Coleman will continue laughing all the way to the bank.

Of course, it’s tough to pander to college student votes if politicians can’t pull the strings when it comes to student loans.

Comments
  • Jim att Conservatives on Fire April 27, 2012 at 1:39 pm

    Educating idiots only produces educated idiots. And, we are the bigger idiots if we continue to stand by and let the pliticians waste our money. I prefer to waste my money myself. But I’m just being selfish, aren’t I?

    • steve April 27, 2012 at 6:27 pm

      You are so greeeee-deeee.

      The government keeps inflating this bubble and when it bursts, we the tax payers, will be holding the bag.

  • Firepower April 27, 2012 at 3:18 pm

    Kids were SO dumb back then, they blindly followed, fainting at His rallies.

    None of them’s gotten any smarter.
    Just lazier. So, they’ll just stay at home on the Xbox.
    Not the same as working for Mitt.

    • steve April 27, 2012 at 6:29 pm

      The kids think “Hope and Change” is so 2008. Just like glow-bull warming

  • TurtleShroom April 29, 2012 at 5:50 pm

    To fix tuition costs, I suggest that we make professors and administrators take a huge pay cut.

    When I have to pay ten thousand dollars to get in while THEY get six digit salaries, there’s something wrong.

    College professors and administrators should be paid the same as their primary and secondary equivalents.

    That’ll reduce the leftist corruption and costs at the same time.