My Dallas Morning News column on how we got into the student loan mess

Unwillingness to stop government loans for college students threatens economy

 

Kevork Djansezian/Getty Images

 

Mark Davis

 

 

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In a rare moment of seeming bipartisanship,President Barack Obama and likely opponent Mitt Romney have found agreement this week on extending artificially low interest rates for millions of government college loans.

Obama wants this because it tightens his bond with voters already hooked up to government largess. Romney says students need the break on repaying the loans because the Obama job creation record is so shoddy.

While they duke that out on the campaign trail, I offer the premise that it was a horrible idea for the government to start offering college loans in the first place.

This conclusion is a natural for me, since I don’t think the government should be lending money to anyone for anything. This is why banks exist.

If banks strike you as a challenging and sometimes unyielding source for money, that’s called the free market. Banks will offer money to people who seem to have a reasonable likelihood of paying it back. Anyone falling short of that standard needs to practice the lost art of coping — with a smaller house, the same car or a college that costs less.

Remember saving for college? That, too, has gone the way of the dinosaurs as government has opened up its vast vault, pouring hundreds of billions of dollars onto people with little or no capacity for repaying.

Haven’t we all heard repeated stories of some poor soul getting a degree in something that promises to pay about 30 grand a year, staring down the cannon barrel of a college debt twice that large?

Fingers point to the high cost of college. No kidding. If any of those students take Economics 101, they will learn a basic fact: A flood of available money for the purchase of something will make that thing get expensive very quickly. This is what gives us $12 Tylenol at the hospital; this is what gives us skyrocketing college costs.

When we turned to government to benevolently shoulder our college burdens, we opened a massive spigot that caused college costs to spike. Our unwillingness to kick the habit of reckless government loans now threatens the entire economy.

There is more outstanding student debt than credit card debt, held by far fewer people and with far lower prospects for repayment.

The private lenders who do engage in the college loan market face the same pressure that mortgage lenders endured when someone decided homeownership was a right. It is not, and neither is college attendance. These are things to be saved for and responsibly managed if debt is incurred.

The concept of personal responsibility is further eroded by the insidiously titled “Fairness for Struggling Students Act,” pushed by Sen. Dick Durbin, D-Ill., which allows for bankruptcy obliteration of student debt.

Durbin and his colleague Sen. Carl Levin of Michigan can be counted on to oppose the Republican House budget plan’s reforms to address the lunacy of loans pouring forth from a government that has no money. Levin’s line will be parroted often: “We need to make college more affordable, not less.”

Something does not become “more affordable” with the mere infusion of unwisely lent money. College should cost what it costs, with prices set by students paying what they and their parents can afford after saving or applying for responsible loans from private banks.

Some kids will go to Harvard, some to a community college. Those decisions should be made in a marketplace uncompromised by a government looking to ensnare our youngest adults in an early web of dependency.

Mark Davis may be contacted at [email protected].

 

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Comments

[Mark]

Interesting analysis. One thing I noted as I recently watched my nieces and nephews try to get in to college (same major Texas colleges I was accepted to with no problem as a C student back in the early/mid 80's) is that you have to be in the top 10% of your High School graduating class to even be considered anymore. An unintended consequence of the whole government loan thing, I guess. Easy government loan money sparks higher demand for limited seats... not only do prices go up but you have to tighten up the entrance requirements, which means the average kids can't get into even the state schools anymore. Acceptance to a state school used to be a slam dunk for us C students. I know "A" students who can't get into either UT or Texas A&M and something is wrong with that.

[Tom E.]

Exactly!

Unrestrained demand is necessarily going to cause prices to rise when supply is reasonably fixed. It is simple, really is.

Look at the housing mess, exact same thing, banks willing to fork out up to %110 of a house's value, of course prices are going to increase.

As far as going to college, as with anything, cost vs. reward must be looked at. I am lucky enough to be a successful engineer, have a pair of 4 year degrees under my belt, and I have made well more than the cost of my education, and more than enough to cover the opportunity cost of not having a real job for those 8 (well really 10, but that is a long story) years.

I could paraphrase Mike Rowe, but I won't, his words are much better than mine
http://www.ted.com/talks/mike_rowe_celebrates_dirty_jobs.html

We need to roll back many of our ideas to the 80s, and the previous commenter may have accident suggested.

thanks Mark, looking forward to hearing you on the radio again.

[Seito no Inochi]

Mark I will look forward to your return to the airwaves. So I will be awaiting to hear where and when that returned will be.

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