Student Loans Enslave A Generation, Make Colleges Rich.

Education debt nears $1 trillion, Record number of $1 million college presidents.

Before we begin, let’s do a little thought experiment.

Imagine you were auctioning off a really nice chair and there were fifty people in the room, each with $100 available, bidding on it.  What’s the most that chair is going to sell for?  $100 of course.  Now let’s say that the government decided it was really important for everyone to have a nice chair so it gave everyone another $100 to buy a chair with.  How much is that chair likely to sell for now? My guess is that it will go for closer to $200. 

Now imagine that that chair was just a regular chair but instead of being in an auction house, it was in a lecture hall at a university.  And let’s say that the students’ parents can give them $10,000 to sit in that chair for a year, and that the government will loan them another $10,000 if they want it.  How much is that lecture hall chair likely to sell for?  If you guessed $20,000, go to the head of the class!  All the money being thrown at higher education is doing nothing but bid up the price of tuition.  It doesn’t help the students, because they have to pay it back.  But it is sure making the colleges very wealthy.

Consider these recent news stories:

From the Wall Street Journal:

Student Debt Rises by 8% as College Tuitions Climb 

Americans owed $904 billion in student loans at the end of March, nearly 8% more than a year ago, the New York Fed said Thursday in a quarterly report on consumer credit. That compares with the $679 billion they owed on credit cards at the end of the first quarter.  Between the fourth quarter of 2008, when credit-card debt peaked, and the first quarter of 2012, this borrowing fell by $187 billion, or 21.6%, the Fed said. Over the same period, student-loan debt rose by 41.4%, or $264 billion.

From CNN:

Fed: Student loans soar 275% over past decade

NEW YORK (CNNMoney) — Student loans have more than tripled over the past decade, according to new data from the Federal Reserve.  Student loan debt hit $904 billion in the first quarter of 2012, up from $241 billion a decade ago, according to the Federal Reserve Bank of New York quarterly household debt report. That’s up 275% since the same period in 2003.

And in 2010 from Boston.com:

College chiefs’ salaries increase

More entering million-dollar ranks, survey says

The club of millionaire college presidents is becoming less exclusive, with 30 heads of private colleges nationwide cracking the once-exalted barrier in a new salary survey.  As recently as 2004, no college presidents received more than $1 million in annual compensation.  But in 2008, the most recent data available, Ivy League and lesser-known colleges alike lavished their presidents with at least that much in salary and other compensation.

This is madness and it will end in catastrophe.  There is no way that this near trillion dollar debt will be paid.  The default rate has been increasing and will continue to rise.  College loans can not be discharged in bankruptcy, and I fear that the government will coerce millions of young people into years of some form of public or perhaps military service in exchange for release from their college debts.  And the taxpayers will have to absorb that $900 billion (and growing) hit.

Meanwhile the colleges have already gotten the $900 billion and and lavished it on outrageous salaries for their administrators, faculties, and staff, and have constructed all sorts of fancy new buildings and facilities.

The only reason colleges charge the astronomical tuitions we are seeing today is because they can.  If the government stopped making student loans the colleges wouldn’t just go away.  They would alter their business models so that the tuitions could actually be afforded.  They would need to cut their bloated payrolls, force their professors to actually teach instead of spending their days doing “research”, and would have to stop constructing palatial facilities to impress prospective students.  Some of these college campuses look more like the Grand Bahamas Resort than a place of learning.  No wonder they are unaffordable!

Our universities would need to be businesses that supply a product that their customers can afford.  And what’s wrong with that?  That’s what every other industry has to do (with the exception of the medical industry, which has also been totally screwed up by the government.) 

So let’s say the government stopped pumping billions into higher education, and the schools learned the meaning of the word “efficiency” and cut tuitions in half.  And let’s say there were still many bright young people who couldn’t even afford the newly reduced tuitions.  Well banks could still make student loans, just like the old days before Obama forbade them from doing so.  And student debt could be dischargeable in bankruptcy just like the old days.  The banks would require that students keep their grades up or they would call in the loan.  That would provide a pretty good incentive to study instead of party.  And there would be no more $100,000 debts to get a degree in the humanities or womens studies.  The banks would only loan money for the pursuit of a degree in a field that had the earning potential to enable the student to pay back the loan.  Plus, the loans would be much lower since tuitions would be lower. 

 The lesson to be learned here (and I am not going to charge you for it) is that the government can not make something more affordable by throwing money at it.  That makes it less affordable.  This fact of economics applies to any field.  If the government decided it was really important for everyone to have very good plumbing, and sank billions of dollars into plumbing subsidies, America would would have a plumbing crisis today in addition to the education and health care crises we already have.

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

Donnlee June 13, 2012 at 02:12 PM
Housing bubble, student loan bubble...thanks big government. Our taxpaying citizens ever poorer because of the economic policies of ever-widening debt that keeps things rushing along and then- the crash..... Of course the foreigners who go free to our universities don't have this burden (and the gov't assigns quotas to be met for them so that some of US born citizens don't get accepted). Notice how little cash most of us working people have these days? And for all our earning and spending we actually are not the owners of our homes, cars. Even the seniors-with the reverse mortgages to be able to afford a home and living expenses. Liberty? No, we are ever more dependent on the entities who own us. Assets? No, we do not own them---owned by others. Poorer and poorer.Less liberty, less options, no solutions.. Read Ron Paul's essays and books. This man is not a run of the mill politician. He has been a medical doctor first; he is a man of ideas, not politics as usual. His ideas are worth our consideration.
proudnot2bliberal June 17, 2012 at 12:07 AM
Excellent example dave! Peopel need to look at how college tuition has sky rocketted in the last 20 - 25 years along with the increase in SL's. It USED to be possible for a middle class family to be able to scrimp & save to put thier kids thru college now its 2n & 3rd morgages on the house & multitude of loans & decades in debt. Big Goverment = BIG problems
Liz Davis August 27, 2012 at 05:04 AM
This is certainly true, as the student loan defaults and debts rise the educational fee's on some colleges for those students who did not take a student loan will be much higher. So basically there are a lot of non-student loan borrower that will be affected. - Liz, http://lizloans.com
skizma August 27, 2012 at 10:31 AM
The MOST unfortunate thing about this article is that it's here on the Patch. This should be an issue on the front page of EVERY paper in america. proudnot2bliberal is right and so are so many. The expectation that the family and student will borrow ENDLESSLY to send their children to college is atrocious. Government can and should step in to stop this. AND student loans MUST be included in bankruptcy. Or some other loan forgiveness. The GOVERNMENT is responsible for this and they take NO responsibility for any part of it. NONE. Just like the housing market and mortgage crash and the BANKs. The Banks are an extension of our treasury really. And when they fail the government fails. Something is WRONG here. People who DON'T have jobs and parents who can't borrow forever should NOT be expected to borrow their lives away. Education is a NECESSITY for the advancement of everyone, absolutely everyone. Society is stupid not to support bettering itself and it's children. Not a place to party endlessly, but a place to learn and grow and improve our community. That's what it's all about.


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