Student Loan Consequences: Real, Costly, and Personal
by Bob Adelmann
of making low-interest loans to unqualified buyers created the real-estate
bubble that popped in 2007, resulting in the Great Recession. According
to Gary Jason at the American Thinker,
it’s about to happen again, only this time over student loans.
He wrote: “This
bubble has been fueled by the federal government’s lavish subsidization
of the student loan program … in a way similar to how the housing
bubble was fueled by government agencies pushing subprime mortgages.”
Under the Student
Aid and Fiscal Responsibility Act (SAFRA) signed into law as part
of ObamaCare in March of 2010, students may borrow money directly
from the federal government regardless of their credit score or
any other financial “issues” they may be facing. They are not priced
according to any “individualized measure of risk” nor are there
loan limits. They are instead politically determined by Congress
with undergraduates receiving lower interest rates than graduate
students, but graduate students allowed to borrow more than undergrads.
entry by the government into what was once a private market transaction
has numerous consequences, nearly all of them negative, and most
of them predictable.
lenders disappeared from the market as they could not compete with
taxpayer funds and taxpayer guarantees and the resulting below-market
interest rates that became available.
growth in the education industry expanded far beyond what was normal
as college administrations saw their opportunity to dip into the
“honey bucket” of federal funds, with the consequent growth in administration
overhead and higher tuition fees. According
to a study by Bain & Company (yes, Mitt Romney’s Bain),
“operating expenses are getting higher [at major colleges and universities
such as Cornell, Harvard, and Princeton] and they’re running out
of cash to cover it.” According to that study, the growth in those
colleges’ debt and rate of spending on new buildings and equipment
rose far faster than did their spending on actual education itself.
Said Bain, "Boards of trustees and presidents need to put their
collective foot down on the growth of support and maintenance costs.
In no other industry would overhead costs be allowed to grow at
this rate executives would lose their jobs."
growth in the cost of obtaining what was once a coveted possession,
a college degree, makes any mathematical justification or cost-benefit
analysis highly questionable. Many students are entering a job market
with degrees that over-qualify them for what the market is able
to provide. According to Jason, “over half of all recent college
grads are unemployed (or employed only at jobs not requiring a college
increase in the flow of funds into the education industry has predictably
driven prices higher. As Jason Bower pointed
out at The Freeman,
2000, tuition at public, four-year colleges has risen by an inflation-adjusted
72 percent, and over the past 25 years it has increased at
an annual rate 6 percentage points higher than the cost of living.
the deferred payments on these loans start, the newly-minted grads
without work cannot make them and they go into default. In a recent
Department of Education study, loan default rates have risen in
each of the last five years, and at an increasing rate, touching
almost one in every seven students with a loan.
loans cannot be dissolved or forgiven in bankruptcy except in extreme
circumstances, leaving students in a figurative “debtors’ prison”
The New American noted,
as the student borrowers are uniquely required by law to repay under
[nearly] any circumstances, the student loan business is the closest
thing … to debtor prison in modern society.
With such a
debt burden, students are forced to make, or avoid making, life
choices, such as getting married or buying a home. Who would want
to take on a partner who owes tens of thousands to the federal government
on the day of the wedding?
the rest of the article
© 2013 The New American