Student loan plan won’t lower costs
Published 7:03 pm Saturday, October 25, 2014
Expanding access to student loans is missing the point. The real problem is the cost of college, not access to loans. Until the price tag on a college degree comes down, young Americans will still be saddled with overwhelming student loan debt.
The Obama administration doesn’t seem to get this. Its focus is on getting more students and their families qualified for loans.
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“The Education Department has loosened credit requirements for a federal student loan program used by parents and graduate students,” the Associated Press reported last week. “A new regulation announced Wednesday updates the definition of adverse credit history as it pertains to the federal PLUS loan program. Under the rule, a potential borrower with overdue debt less than $2,085 is considered not to have adverse credit history.”
In 2011, the government tightened the rules for getting loans, but that had a big effect on historically black colleges. At the urging of the Congressional Black Caucus, Obama loosened those rules.
There are good arguments to be made against such a move (Investors Business Daily notes that “national default rates for the loans, already on the rise, will only climb higher”). But that’s really beside the point. The problem is the cost of a college education.
It’s not hard to figure out why costs have risen so high.
“Whereas private businesses cut prices for consumers and costs to themselves through efficiencies that increase profits and incomes, universities lack those incentives,” says economist Richard Vedder. “Indeed, the typical successful university president views his or her key constituencies not to be the customer (students and their parents who pay tuition charges or the granters of research funds), but rather others — the faculty, important alumni, key administrators, trustees and occasionally politicians. They please these constituencies by raising, and then spending, lots of money.”
He explains how student loans are one cause of the price increase.
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“Like health care, prices are rising rapidly for higher education because of the predominant role of third-party payments — federal student loans and grants, state government support for institutions and students, private philanthropic gifts and endowment income,” he says. “When someone else is paying a lot of the bills, students are less sensitive to the price, thus allowing the colleges to care less about keeping prices under control.”
We’re going to have to reform the system — sooner, rather than later.
“College costs cannot rise faster than income forever — we cannot afford it. Necessity is the mother of invention,” Vedder contends. “Like it or not, American higher education is in for big change in the next generation.”
Suze Orman goes even further; she calls student loans the “greatest threat to our economy.”
“When students of the greatest nation on Earth are buried with student loans, their ability to buy a home, to have disposable income, to be a vital participant of the economy, is greatly reduced,” she says.
There are some reforms happening now. The “$10,000 degree” offered by public colleges in Texas and several other states is a great first step.
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