The continuing student loan debacle

| August 19, 2013

Matt Tabbi at Rolling Stone has a (deservedly) scathing article on the growing student loan bubble, something that Glenn Reynolds at Instapundit has been writing about for years. Tabbi takes some cheap shots at the Right, but he’s pretty scathing on Obama as well.:

Obama had already set himself up as a great champion of student rights by taking on banks and greedy lenders like Sallie Mae. Three years earlier, he’d scored what at the time looked like a major victory over the Republicans with a transformative plan to revamp the student-loan industry. The 2010 bill mostly eliminated private banks and lenders from the federal student-loan business. Henceforth, the government would lend college money directly to students, with no middlemen taking a cut. The president insisted the plan would eliminate waste and promised to pass the savings along to students in the form of more college and university loans, including $36 billion in new Pell grants over 10 years for low-income students. Republican senator and former Secretary of Education Lamar Alexander bashed the move as “another Washington takeover.”

The thing is, none of it – not last month’s deal, not Obama’s 2010 reforms – mattered that much. No doubt, seeing rates double permanently would genuinely have sucked for many students, so it was nice to avoid that. And yes, it was theoretically beneficial when Obama took banks and middlemen out of the federal student-loan game. But the dirty secret of American higher education is that student-loan interest rates are almost irrelevant. It’s not the cost of the loan that’s the problem, it’s the principal – the appallingly high tuition costs that have been soaring at two to three times the rate of inflation, an irrational upward trajectory eerily reminiscent of skyrocketing housing prices in the years before 2008.

Tabbi is right that the rise in tuition rates is the real underlying problem; while he identifies the student loans as a “federal subsidy”, he doesn’t take the last few steps and acknowledge that cheap money leads to inflation (one of Reynolds’s main points). He also doesn’t really touch upon the extraordinary growth in administrators (cf. the University of California) as a major factor.

The “bankruptcy reform” that removed student loans from being eligible is probably one of the vilest acts of Congress in recent years. Revoking the provision would probably do more to stimulate the economy — and, frankly, get student loan rates and qualifications back in line with reality, and thus exert downward pressure on tuition rates — than anything else Congress could do. ..bruce..

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Category: Credit Backlash, Creeping socialism, Economics, Education, Idiot Congresspersons, Idiot educators, Main, Obama Administration

About the Author ()

Webster is Principal and Founder at Bruce F. Webster & Associates, as well as an Adjunct Professor of Computer Science at Brigham Young University. He works with organizations to help them with troubled or failed information technology (IT) projects. He has also worked in several dozen legal cases as a consultant and as a testifying expert, both in the United States and Japan. He can be reached at bwebster@bfwa.com, or you can follow him on Twitter as @bfwebster.

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