First Hindsite, it is about time you made a comprehensive argument. Good job. And it may surprise you to know that I agree with just about all of it. I am, a conservative after all.
Couple of points:
Anyone with common sense knows that if the government starts paying for state college and university tuition, then the tuition cost will be raised in following years. That is the way capitalism works. The reason the tuition is as high as it is now is because the government basically took over student loans with the government guarantee with setting borrowing limits and interest rates, resulting in the incentives for students to borrow and colleges to raise prices.
Absolutely correct. Because there is unlimited money available the only incentive left is the amount that a student believes he/she will be able to repay. And that is why tuition is so high.
Private lenders need to turn a profit at the end of the day, so they must be scrupulous about how much money they lend, and to whom, and for what sort of education. Banks have an incentive to only support education which is financially worthwhile. While they may sometimes make mistakes, private student lenders must work towards continuous improvement, or else the lenders will go out of business.
Sort of. They would, for example, be perfectly justified in loaning a medical student more than they loan an English major. And they would be equally justified in not loaning money at all. Or in paying the money to the school for tuition and not directly to the student. All sorts of things.
The federal government, by contrast, has no incentive to incorporate such scruples into student lending. Any losses on federal student loans are borne by taxpayers, not the government officials who actually design and operate the loan program. Politically-connected institutions successfully fight efforts to rein in irresponsible lending. That’s why the default rate on federal loans to undergraduates exceeds 25% and federal money continues to flow to institutions where only a small fraction of students graduate.
Yup.
But the moment the government gives private banks a taxpayer guarantee, free-market discipline evaporates. When taxpayers bear the losses arising from irresponsible lending, private actors lose their incentive to sort out good bets from bad.
Also true. That is why I would get the government completely out of the loan business at all. If I was president I would introduce legislation completely disbanding the Education Department. The states could and should handle this themselves. Until 1980 they mostly did. Now we have this behemoth that hands out money with little or no oversight and no accountability as you said.
The purpose of the Department of Education is to politically control local schools by giving them just enough money to make them toe the line on the issue du jeor.
If the federal government decides it is in the interest of the country to encourage certain careers (doctors for example) then I have no problem with it establishing a grant program to help pay for them on a limited basis. Perhaps requiring new doctors to repay their education by serving under served populations for a couple of years.
I really have no problem forgiving some or all of the current loans as long as the loan program ends or is severely restricted. States could then decide what help they are to give the students and how to tax their people to pay for it. That is completely consistent with our constitution and the notion of local government.
- By skinster
- By paeng