Students Loans: Messing it Up

It’s really, really easy to get loans to attend college. And going to college is, as it seems everyone in America knows by now, really important. And so the federal government offers generous loans to people who want to attend college. And private banks offer generous (though higher interest) loans too. But these things don’t result in merely more college graduates; it also means a lot of crippling debt.

According to a really interesting article by Katherine Mangu-Ward in Reason:

When the government subsidizes something, we wind up with more of it. When it subsidizes something heavily—and combines that subsidy with an aggressive campaign encouraging consumption of that thing from the presidential bully pulpit—we wind up with a lot more of it.

For-profit schools have low rates. But the new “gainful employment” rules—which are supposed to crack down on for-profit career-focused degree programs with low loan repayment rates—would scarcely make a dent in the record-low numbers above. Those rules dissolve programs that have repaymemt rates below 35 percent, a figure that falls conveniently between the abysmally low repayment rates for traditional two- and four-years schools and the abysmally low repayment rates for-profit two- and four-year schools.

When this many students aren’t able to pay back their loans, there’s something wrong with the overall system. Students of all kinds, at schools of all kinds, are getting loans they can’t reasonably anticipate paying back.

There’s definitely something wrong with the overall system but it’s peculiar that Mangu-Ward thinks the problem is that the government subsidizes higher education. In fact the United States isn’t nearly as generous with higher education subsidies as other developed countries are. The American government merely offers students low-interest loans. In most countries the government simply pays most of the cost.

As recent protests in the United Kingdom and Italy have demonstrated, this system doesn’t exactly work perfectly, but at least it doesn’t leave students in horrible debt (yet).

The problem isn’t too much higher education; it’s the fact that students and their families have to pay for most of it themselves, plus interest.

Some 66 percent of American college graduates now owe an average $23,186 in student loans. The title of the Reason article was “Easy Money For College Can Mess You Up, Man.” The trouble with this is that it’s not really easy money; it’s just easy debt. And that’s messed up.

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer