college student debt money

Higher Education + Government Meddling = More Student Debt

When you think of Obamacare, you probably think of healthcare, but higher education should come to mind as well, specifically with regard to student loans.  And the thoughts that follow thereafter will probably not be pleasant.  According to one report:

Banks wrote off $3 billion of student loan debt in the first two months of 2013, up more than 36 percent from the year-ago period, as many graduates remain jobless, underemployed or cash-strapped in a slow U.S. economic recovery, an Equifax study showed.

Students’ inability to pay off their loans results in delinquencies, which “have spiked in the last eight years, with about 17 percent of the nearly 40 million student loan borrowers at least 90 days past due on their repayments.”

Moreover, instead of facing the hopelessness of a job search that isn’t likely to pan out, many students are seeking another way to kill time, namely, going back to school:

[S]tudent lending has grown from last year because more people are going back to school and the cost of higher education has risen.

Once again, student loan interest rates are scheduled to return to their pre-recession levels this July. Should this occur, the likely result will be fewer loans taken out and that will ultimately mean fewer delinquencies. Unfortunately, Congress failed to solve the problem last year by allowing the rates to double and essentially kicked the can down the road.

How on earth did we get here?  If you guessed meddling by the federal government you get a prize.  (Not really… but you have good instincts.)

As Heritage has explained, Congressional Democrats and the Bush administration artificially lowered student loan interest rates in 2007.  They set the rate at 3.4 percent, but this was supposed to be temporary and revert to 6.8 percent in five years. As we all know, rarely if ever are such policies temporary.

This in conjunction with loosened eligibility requirements allowed “virtually anyone” to be able to receive a student loan “regardless of repayment potential.”  And once again President Obama doesn’t want to see the interest rate return to a more responsible 6.8 percent.

Though it might sound like Mr. Obama is just pro-higher education, there are some very important considerations you should recall.

First, nothing is free:

[T]he $6 billion price tag associated with maintaining the 3.4 percent rate is passed on to all taxpayers — three-quarters of whom don’t hold bachelor’s degrees (and presumably earn less, on average, than the college-goers they are subsidizing).

Second, having an artificially low interest rate for student loans does not make education more affordable:

Such federal subsidies do little to fundamentally reduce the cost of college. Since 1982, the cost of attending college has increased 439 percent, despite roughly proportionate increases in federal subsidies such as Pell Grants over the same time period.

And this is where Obamacare comes into the picture, only making matters worse:

[A] provision buried deep in Obamacare effectively nationalized the student loan industry by ending government subsidies to private lenders and putting the federal government in charge of originating and servicing federally backed student loans. 

To be clear, further meddling and government takeover won’t solve the problems that the federal government created.

There are better solutions for the crisis in higher education including the following:

Shifting from debt-based to savings-based college financing, limiting access to federal student loans to four years of undergraduate work, and—with the proliferation of online learning—allowing the free market to work to reduce college costs are all policies that would provide needed relief to both students and taxpayers.

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Federal government creates problems and then makes them worse with their "solutions." Enough is enough.

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The federal gov't meddled in higher education and student loans. The result? Tons of students in debt.

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