Solving the Student Loan Problem

            The topic of student loans has been in the news lately. The amount of student loan debt is unfathomable. It seems that many students do not understand that student loans must be paid off. Some, if not all, of the Democrat presidential candidates are pledging to pay off all student if they become president.

            Daniel Davis of The Daily Signal posted a transcript of a podcast titled “The Unintended Consequences of Student Loans.” During the podcast Davis interviews Richard Vedder who is the author of Restoring the Promise: Higher Education in America. They discuss how college tuition rates go up every year and how this fact creates the student debt crisis. Students who understand that the money actually has to be paid back are skipping college entirely. 

            Davis asks Vedder to answer this question: “So, lots of younger folks, in my generation and younger, are saddled with student debt and I want to ask you about that. We often think of student federal aid as a good thing, something that helps us afford college, but you write in our book that government air actually contributes to the problem. Can you explain that for us?” Vedder gives the following answer.

Sure. When they started the student loan programs around 1970, and they grew very large in the late ‘70s, an extension of the Student Loan Act provided this money. When this happened, colleges said, “Aha! Kids are going to be able to afford college more than before, so we can be more aggressive in raising our fees.”

So colleges, starting in the late ‘70s, started to raise their fees. They used to go up a little bit more than the inflation rate, maybe 1% more a year than the inflation rate. Now they started going up far faster, 3% or more faster than the inflation rate.

And if you compound that over 40 years, which is the amount of time that has passed since then, … kids are now paying about double the tuition fees they would’ve paid if that had not happened.

So the tuition fees in America have been pushed up by the student loan programs. I think Bill Bennett, who was secretary of education, wrote a[n] op-ed in The New York Times, of all places, in 1987 where he made that point.

And a lot of people poo-pooed it and said, “Ah, that’s not true.” But the research from the New York Fed and the National Bureau of Economic Research has validated what Bill Bennett said.

            Vedder continues by saying that the government loan program is the key driver of the rise in college. It stands to reason that government should solve the problem. However, anyone with a smidgen of wisdom knows that government does not solve any problems because government is the problem in many ways and particularly in this particular case.

            Instead of paying off all the student loan debt, the government should get out of the student loan business. Without the government providing student loans, the price of tuition would fall to a reasonable level. Serious students would attend college and weed out many of those who go to college for the parties. Students and/or parents would be forced to save for college or obtain loans from banks and credit unions.

            The one thing that we all must understand is the fact that getting an education does not need to be outrageously expensive. I am currently taking classes online at $69 per credit. The price has gone up about $4 since 2015, but it is still reasonable. God commands His people to become educated, but He does not expect us to go into debt for that education.