Help Students by Ending Student Loan subsidies

tunnelIt’s not uncommon to see articles (such as this one from the NY Times) that lament the fact that higher education is becoming less affordable while, at the same time complaining of the plummeting value of a college degree. The familiar refrain for these commentators is that the solution is more loans. In fact, the opposite is true. 

Rising prices in education are caused by the same market effects as rising prices in the healthcare industry. Specifically, the government has diverted more money into the area, through guaranteed student loans, for the same amount of educational product. The result is identical as it would be in anywhere, industry specific inflation. A lack of demand fails to control this trend because people who attain degrees tend to displace people who do not even in areas where a degree has no practical use. Therefore, college is infinitely in demand from market participants in an attempt to avoid being the last person without a chair when the music stops. 

While loans do create more college graduates, they do not create more jobs requiring this level of education. Therefore, when the graduate is searching for that first paycheck they are in competition with an artificially high number of their peers. The effect of market forces is once again clear, an oversupply leads to a reduction in the salaries of educated young people. This wage depression effect filters through the entire economy because the availability of college educated people in sectors not needing such qualifications reduces the value of people with only high school. 

What makes matters worse is that the loan program is itself financed by government debt — with the absurd expectation that borrowers will earn enough to compensate for the additional interest accrued. In reality, the depressing effects of the program will make borrowers incapable of escaping the debt burden forced on them by allegedly benevolent government action.

Of course, the winners in the system are the older generation. It is they who own the companies that benefit from depressed wages and they who have provided the capital to make the loans. While many of us suffer under monstrous debts, it is our parents and grandparents’ generation who will collect our loan payments, confident that no matter how poor an investment our education has been, we cannot escape through bankruptcy. And all the while they will call us lazy, and complain that people just used to work harder. 

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