Few Elections for any executive or legislative office go by without some sort of promise to support education and make College more affordable. With few exceptions - College Prices have increased at a greater rate than general inflation - often two to four times greater.
Currently, the Obama White House has a number of programs to make college more affordable. Most of these plans simply focus on making more money available to consumers to purchase a College Education: (1) Increase Grants; (2) Reduce Student Loan Interest Rates; and (3) Modify Student Loan Payments to be based upon income.
Although aspirational goals are made to make College's reduce their costs - it is unclear how these incentives will outweigh the greater purchasing power of estimated 14.4 million of College Students.
My position is that student loans not only harm the students who take out the loans but those students who do not as well. Young people at the ages of 18-21 are encouraged to take out loans without regard to credit worthiness, the soundness of their educational choices, or the likelihood they will graduate. According to the White House - slightly more than half complete a four year degree in six years and the rate drops to 25% of low income students. These loans are not dischargeable in bankruptcy.
But how do they harm students who don't take out student loans?
Imagine you are in the market for a house. As shelter, a house is a necessity and historically real estate has been a good investment for the average consumer. In order to purchase a house, you must be able to offer the seller a sufficient amount of money in order to make your offer enticing enough to accept. Theoretically and in reality you are competing for the same real estate with other buyers. When their are more buyers than sellers - the prices will increase and it is called a "sellers" market.
Imagine if the Government went wholesale into the Housing Loan Industry and guaranteed loans made to home purchasers in the same manner that loans are made available to 18 year olds. (Many argue this is what actually happened to create the real estate / mortgage crisis of the late 2000's.)
Loans will be made without regard to:
- The credit worthiness of the borrower.
- The value of the house selected
- Whether the home will even be livable after four years.
- Whether the borrower will have the income to re-pay the loan.
- Interests rates which will be kept artificially low since the Federal Government will pay of the loan in case the borrower deposits.
How will home sellers react when faced with home buyers with access to greater - almost unlimited funds? Will prices stay the same? Go down? or Go up? The obvious answer is that prices will increase.
Suddenly the non-borrowing home buyer is now competing with other purchasers with unlimited funds divorced from ability to re-pay and the value of the home. The non-borrower is forced to come up with more money and pay more until prices reach such a rate that the non-borrower is forced to borrow as well in order to compete.
It is axiomatic that the more Government makes obtaining money for college to be more "affordable" the higher Colleges will increase their prices. It will be politically impossible to convince the public that best way to make College more affordable is to reduce the artificial ability of the public at large to pay higher prices. While some argue that such a policy would only result in the rich going to College, most Colleges would not be able to operate if they only accepted the top ten percent of society.
We haven't even discussed if having a greater percentage of college graduates degrades the "value" of a college degree as a competitive distinction in obtaining work.
Regardless any solution is a trade off since no system or solution solves 100% of the "problem" without creating other problems in its wake. The question is which problems would you rather have?
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