Government intervention & student debt

Elizabeth (“I’m an Injun”) Warren says that a Republican proposal to raise the interest rates for student loans is “immoral.” Oh dear. If you want to know one thing that’s really immoral in the smart world of politics and higher education, read Glenn Reynolds’s terrific column today in The Wall Street Journal. Noting the crippling amount of debt taken on by many students today (many graduate owing more than $100,000), Reynolds makes this critical but oft-overlooked point about student debt, the skyrocketing cost of higher education, and the role that government meddling in education has played in creating both monsters:


The skyrocketing cost of a college education is a classic unintended consequence of government intervention. Colleges have responded to the availability of easy federal money by doing what subsidized industries generally do: Raising prices to capture the subsidy. Sold as a tool to help students cope with rising college costs, student loans have instead been a major contributor to the problem.

In truth, America’s student loan problem won’t be solved by low interest rates—for many students, the debt would be crippling even if the interest rate were zero.

So what’s the answer? Reynolds has some good suggestions:

If we want to solve the very real problem of excessive student-loan debt, college costs need to be brought under control. A 2010 study by the Goldwater Institute identified “administrative bloat” as a leading reason for higher costs. The study found that many American universities now have more salaried administrators than teaching faculty.

Another way to approach costs is to remove the incentives for universities to accept government-subsidized student-loan money regardless of a student’s prospects of graduation or gainful employment. Under the current setup, incentives run the other way: Schools get their money up front via student loans; if students are unable to pay the loans back, the burden falls on taxpayers (if the loan was “guaranteed” by the federal government), and the students themselves, while the schools get off scot-free.


It’s time that concerned citizens help prick what Reynolds has elsewhere called “the higher education bubble.” That’s the really immoral thing we’re confronting, though you won;t catch a spendthrift ideologue like the preposterous Elizabeth Warren acknowledging the fact.





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