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Get Government Out of Student Loans

The cost of college is skyrocketing, and students are graduating with record levels of debt in order to meet the expense.

Since 1978, college tuition and fees have increased by 1,120 percent—outpacing inflation four times over and racing past other core consumer costs such as medical expenses and food. In 2010, national student loan debt surpassed the total level of U.S. credit card debt, and, in 2011, passed the trillion dollar mark.

Because of rising costs, the average U.S. college student now graduates with nearly $27,000 in student loan debt. This debt, coupled with a 16.1 percent unemployment rate for Americans under the age of thirty, is wreaking havoc on the lives and futures of college students and graduates.

The student debt crisis is now a fiery hot topic in Washington as the interest rate on federally subsidized student loans is set to double from 3.4 percent to 6.8 percent on July 1.

The possible interest rate increase naturally has many future college students worried about having to pay even more in long-term student loans, and many students are demanding a “solution” from Congress.

Although legislators have proposed new measures to tweak the way government handles student loans, the solution to the student debt crisis is not further government tweaks. Government intervention in the higher education market is precisely the reason college has become so expensive. Through a complex system of government-backed student loans, grants, tax credits, and regulations, the federal government has massively subsidized or manipulated students, banks, and colleges in an effort to make college education more “affordable.” But these policies have had the exact opposite effect on the price of higher education.

With respect to student loans, the pattern is as follows: Washington legislates artificially low, fixed interest rates; universities respond by raising their tuitions and fees; and students respond to that by taking out more and larger student loans to cover the costs.

The solution to this clearly government-caused problem is to remove government from the equation; to recognize the rights of students, banks, and colleges to contract in accordance with their own judgment; and to let the free market do what it does so well: set prices in accordance with supply and demand.

In a free market, colleges would have incentives to offer better degrees for less money; banks would have incentive to make education loans at rates students are willing and able to pay; and students would have incentive to pay back their loans, as bad credit is not good for one’s life.

Students are right to demand a “solution” from Congress, but that solution should be to get government out of the way.

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Image: Wikimedia Commons


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