August 11, 2012
PROF. WILLIAM HENDERSON: Federal Funding of Higher Education–A Bubble that is Going to Burst.
Student loans are viewed as “assets” by the federal government … until they become uncollectable, in which case the value of the assets eventually has to be adjusted through write-downs, just like mortgages in the mortgage crisis. Extensive use of Income-Based Repayment makes it possible for a student loan to be simultaneously uncollectable but not in default.
Folks, I am an unapologetic New Deal Democrat. But the current “system” of federal higher education financing is near perfect insanity. We set tuition and, no questions asked, the federal government writes us checks in exact proportion to students’ willingness to sign loan papers. For young people who have never worked, it is all like monopoly money.
The only way the math works is if the real earnings go up en masse for virtually all college and professional school graduates. In a rapidly globalizing world in which our students are competing against Chinese and Indian professionals, the assumption of mass rising real incomes is implausible. See, e.g., views of economist Alan Blinder in this NPR article.
Right now we–higher ed and the nation as a whole–are maintaining the illusion of prosperity through debt financing heaped on naive young people. This is immoral in the extreme. Moreover, in the long run, it is economic and political ruination.
Couldn’t have said it better myself.