from The TribLive The disease that is government by Antony Davies & James R. Harrigan
Getting the causality backward again, government acts as if a college degree causes, rather than results from, success. As it did in the housing market, the government requires banks to lend to high-risk borrowers (via Stafford and Perkins loans), provides tax breaks for college loans (the Taxpayer Relief Act), and forces taxpayers to subsidize student loans (via the Department of Education).
Last year, President Obama expanded his student loan forgiveness program, wherein taxpayers pay for college loans that students can no longer afford. In January, the president proposed that taxpayers underwrite students to attend community college.
But here’s the catch: Since more talented and harder working students have less trouble getting into college, encouraging more borrowing for college largely means encouraging less talented students to take out college loans. As with the housing market, this will simply alter the pool of borrowers. The influx of college students will drive up tuition in the same way that the influx of home buyers drove up housing prices.
Less talented students who drop out or graduate with degrees for which there are no jobs will find themselves saddled with debt that they cannot repay. Many will default on their loans, as did the high-risk homeowners.
Taxpayers will be forced to pay for the bad college loans, just as they were forced to pay for bad home loans. Demand for college will plummet, as did demand for housing. Some colleges will go bankrupt and others will seek bailouts, as did the banks.
Like the bank presidents, university presidents will be vilified for accepting students’ tuition dollars without concern for whether those students could succeed.
Politicians will beat their breasts and point fingers at the “free market” and call for more regulation of lending markets and oversight of universities. And, as today, politicians will have missed the lesson entirely and so be doomed to repeat it yet again. In the housing market, in the college loan market and in whatever market comes next, government isn’t the cure.
It is the disease.
tips to Carpe Diem