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View Full Version : The Student Loan Bubble: Unintended Consequences of Federal Student Loans



Dolphins9954
10-22-2012, 09:04 AM
College tuition costs have been skyrocketing and the more they go up, the more the government tries to help make college more affordable. Americans owe $1 trillion in student loans, even more than they owe in credit card debt. The federal government has been involved in student loans since 1958, either by guaranteeing loans made by private banks or by giving out loans themselves. Tuition rates have been increasing at about twice the rate of inflation (http://www.finaid.org/savings/tuition-inflation.phtml), and still, proponents of federal student loans have yet to connect the dots.

Their intentions are good, but the government’s involvement is precisely what has resulted in the rise of tuition costs. Why do schools continue to increase their prices every year? Because they can. The government gives the schools whatever money they ask for, because “we must help everyone get a college degree.” If the government were to give everyone money to buy computers, the price of computers would also skyrocket.
If you support the government's involvement in student loans you are unknowingly supporting the transfer of wealth from the taxpayers to the schools. The schools are the real beneficiaries here, not the students. The students are accumulating a tremendous amount of debt for a service that is extremely over-priced, and in many cases, worthless.


For a while, private lenders were also greatly benefiting, as the government used to guarantee their loans. This meant lenders didn't have to care who they were lending money to and for what type of degree, because if the student defaulted on the loan, the government would be there to pay them. This is no longer the case. Since 2010, the Department of Education has been administering the federal student loans directly (http://en.wikipedia.org/wiki/Health_Care_and_Education_Reconciliation_Act_of_2010), and giving the money to the schools rather than to the bankers. They realized they were enriching the banks at the expense of the taxpayers. They somehow fail to realize they have not solved the problem. They are still enriching the schools at the expense of the taxpayers, and rather than make college education more affordable they are doing the opposite.

If you want any good to be as cheap as it can be, you need to allow for competition. Without government loans, the schools would be forced to lower their prices lest they lose customers. Today, they are being guaranteed customers regardless of how expensive they make their service.

It is ironic that those who advocate for the elimination of government student loans get accused of not caring about the students, when in fact it is the proponents of government loans that are ensuring that students pay the absolute highest price for their education............



http://www.truthinexile.com/2012/10/21/the-student-loan-bubble-unintended-consequences-of-federal-student-loans/

JackFinfan
10-22-2012, 11:51 AM
There has to be some idea that falls in between what we have now and totally eliminating loans. Perhaps, creating loans that are at predetermined fixed amounts that increase each year based on inflation. Maybe, provide loans so that they only cover estimated non school related expenses (housing, food, etc). Let's say the gov't calculates that the avg person needs $3,000 a semester for non school related expenses. An incoming college student with no money would be motivated to choose a school with the lowest tuition, because they know that they'll only be getting $3,000 a semester regardless of the University. That would create competition, thus lowering the tuition rates.

Locke
10-22-2012, 01:18 PM
There has to be some idea that falls in between what we have now and totally eliminating loans. Perhaps, creating loans that are at predetermined fixed amounts that increase each year based on inflation. Maybe, provide loans so that they only cover estimated non school related expenses (housing, food, etc). Let's say the gov't calculates that the avg person needs $3,000 a semester for non school related expenses. An incoming college student with no money would be motivated to choose a school with the lowest tuition, because they know that they'll only be getting $3,000 a semester regardless of the University. That would create competition, thus lowering the tuition rates.

Before all of that, tuition needs to stop climbing at exponential rates. Higher education is being run as a business for profit, and that needs to stop...

CedarPhin
10-22-2012, 01:41 PM
Clearly, we should just put it back in the hands of Chase, and a few others. They have our interests at heart, I'm sure.

JamesBW43
10-22-2012, 02:45 PM
I'm not so sure I buy this argument. Could it not be the case that it has less to do with government guarantees/loans and more to do with culture and demand?

And if I did agree, what happens if student loans were left purely to banks and there were no guarantees? Would banks start to get picky about which students get loans and which don't?

I also don't like the idea of turning the loan process into a career decision, but I do think it's an interesting idea to add some kind of incentive for more science related degrees. I certainly regret not pursing a science degree myself.

trojanma
10-22-2012, 03:39 PM
I have seen this argument before and i believe that it is only partially true. I am carrying 200k of debt from my 9 years of higher ed.
It certainly pertains to for-profit colleges such as pheonix, Virginia college, etc. I dont want offend anyone but those places are money making factories built on government that offer guaranteed loans.

With non for profit higher universities the linear relationship is not as clear. In the state of sc starting with the dot.com bubble there was a dramatic reduction of state funding. MUSC essentially raised tuition by over a 100% over the 4 years i was there. College of Charleston my other alma mater has had preliminary talks about going private since they get so little now from the state it is a joke.

Simply eliminating funding may result with efficiency improvements down the road such as virtual classrooms but in the interim the results.would be devastating.

Eshlemon
10-22-2012, 04:39 PM
I'm not so sure I buy this argument. Could it not be the case that it has less to do with government guarantees/loans and more to do with culture and demand?

And if I did agree with the premise, what happens if student loans were left purely to banks and there were no guarantees? Would banks start to get picky about which students get loans and which don't?

I also don't like the idea of turning the loan process into a career decision, but I do think it's an interesting idea to add some kind of incentive for more science related degrees. I certainly regret not pursing a science degree myself.

The demand has gone up but not relative to cost. And while students and administrators have gone up, professors haven't matched growth and they don't want them too as seems like their always stating standards are to low and fewer should be allowed into masters programs. JackFinFan has an interesting point regarding secondary costs but I have no idea the impact as beleive remember only around 20% are on-campus...but can't remember if that included community colleges or not.

Tough with loans and money...non-profits state the money's needed to make to sell their college experience over others. The college I went to (UNC-G) looks a lot prettier with lots more amenities than 20 years ago and huge increases in tuition that haven't improved on the academic accreditations. But we might get football soon too! And of course profits love this and should be no government for private colleges. For instance, around 10% of Pells goes to students at private colleges and 25% of Pell money.

WadeCounty1231
10-22-2012, 04:50 PM
its not only student loans causing rates to rise, its funding for schools, especially in Florida

now, rising prices are a problem, but private loans in education are much much worse.

spydertl79
10-22-2012, 08:37 PM
Yep... I have both kinds of loans. Private loans get paid off first because they have higher interest rates.

I had multiple scholarships, worked about half of my time in college, and went to a very inexpensive school and still ended up $30K in debt.

It's all pretty much paid off now but I am one of the few people who got a really good job right out of college... this will be an issue during the next election, America might wake up to it by then.

Also: Hi everybody!

Dolphins9954
10-22-2012, 09:16 PM
Yep... I have both kinds of loans. Private loans get paid off first because they have higher interest rates.

I had multiple scholarships, worked about half of my time in college, and went to a very inexpensive school and still ended up $30K in debt.

It's all pretty much paid off now but I am one of the few people who got a really good job right out of college... this will be an issue during the next election, America might wake up to it by then.

Also: Hi everybody!


Wesley Chapel represent!!!!!!!

Locke
10-22-2012, 10:30 PM
Yep... I have both kinds of loans. Private loans get paid off first because they have higher interest rates.

I had multiple scholarships, worked about half of my time in college, and went to a very inexpensive school and still ended up $30K in debt.

It's all pretty much paid off now but I am one of the few people who got a really good job right out of college... this will be an issue during the next election, America might wake up to it by then.

Also: Hi everybody!

Welcome back, my friend. Just get Rafiki back and we'll be good to go...

Tetragrammaton
10-23-2012, 01:04 AM
If only we guaranteed a four-year paid education to all students. It would be much cheaper than the current system.