President Obama is appealing to a disgruntled demographic with his plan for student loan reform — but it’s a bait and switch that will continue to enrich colleges and universities, to gouge and impoverish students, and to provide perverse incentives across the board.
Here’s John Podhoretz in the NY Post:
The staggering inflation in the cost of higher education since the federal government got involved in lending money to Americans for college in 1965 beggars description. One federal study found that between 1982 and 2007, tuition costs rose 432 percent while family income rose only 147 percent.
It is impossible to imagine that costs would have been even higher had the federal loan system not been in place at all. In other words, while federal subsidies have continued to grow, they have simply been gobbled up by universities.
According to the invaluable Web site finaid.org, the average graduate of a four-year college in the United States now leaves school saddled with $27,000 in debt. The reforms the president announced to the national student-loan system in front of an audience of screaming college kids in Denver on Wednesday won’t actually do very much to help them — and will do nothing to help people out of college now and coping with their indebtedness.
The reforms are complicated and banal, but the best any eligible student can get out of them (and not all of them can) is an interest-rate reduction of 50 basis points, or half a percent.
So say you’re an average student carrying a $27,000 debt. Your monthly payment is about $208. With the reforms Obama is instituting, and assuming an interest rate of 6 percent, your monthly payment will drop $9 a month to $199. Staggering.
In addition, the proposal advances the Obama administration’s drive for the federal government to take direct control of the nation’s student-loan system. You’ll borrow from the federal government and you’ll pay the federal government back.
Without question, the current system — a jerry-rigged series of loan programs that now shockingly involves Washington offering undeserved direct subsidies to private banks — is terrible.
But when the government becomes the holder of American loans, something even worse happens. The relation between a self-governing people and those who govern them is thrown out of whack. Perverse incentives pop up all over the place. It happened to American agriculture. And it has been happening for decades with American higher education, which has been on an expansionist spree in part as the result of federal tuition subsidies.
I know a guy who just shrugs at stuff like this and says we’re getting what we voted for.
Did I mention that the most expensive schools in the country are pushing $60K a year (Sarah Lawrence, at number one, runs $58,334 all in this year)? More than 120 schools have crossed the $50K mark. And publics are closing in on privates — especially for out of state students.
There are still some bargains out there — reasonable prices and a strong education. You can go to UNC – Chapel Hill for $6665 in tuition and fees. May the market do its work.