Essay: Are Student Loans Too Costly?
The first lesson of economics is scarcity. There is never enough
of nothing to fully satisfy all who does want it. However, the
first lesson of politics are to disregard the first lesson of
economics. When politicians discover a group who is vocal about
the lack of something they want. The ¡°solution¡± will be to give
them more. Where does ¡°more¡± come from?¡ªpoliticians who rob
Peter to pay Paul.
After a while, of course, we discover that Peter doesn¡¯t have
enough. Bursting with compassion. Politics rush to the rescue.
Needless to say, they do not admit that robbing Peter to pay
Paul will be a dumb idea in the first place. On the contrary,
they now rob Tom, Dick, and Harry to help Peter.
The latest chapter in this long-running saga is that politicians
have now suddenly discovered that college students graduate
heavy in debt. To politicians it follows, as the night follows
the day, that the government ,ay come to the rescue with the
How big is this crushing burden of college students¡¯ debt that
they here so much about from politicians and media deep
thinkers? For those students who graduate from public colleges
owing money, the debt averages a little under $7,000. For those
who graduate from private colleges, the average debt is a little
Buying a very modestly priced auto involve more debt than that.
And a car loan has to be paid off faster than the 10 years that
college graduates get to repay his/her
. Moreover, students
will keep buying cars several years, while one college
education last a lifetime.
College graduates, of course, earn higher incomes than other
people. Why, then, should we panic in the thought that they have
to repay loans, for the education giving them their
opportunities? Even graduates with relatively modest incomes pay
fewer than 10 percent of there annual salary on the first loan
the first year¡ªwith declining percentages in future years, as
their pay increased.
Political hysteria and media hype may focus on the low-income
student with a huge debt. This is were we get our heart-rending
stories¡ªeven if they are not all that typical. In reality, the
soaring student loans of the past decade have not
resulted from allowing high-income people to borrow under
Before 1978, college loans were available through government
programs only to students whose family income was below some
cut-off level, who was about double the national average income,
but at least it kept out the Rockefellers and the Vanderbilts.
But, in an era of ¡°compassion,¡± Congress left off even those
That opened the floodgates. No matter how rich one was, it still
paid to borrow money threw the government at low interest rates.
The money parents had set aside for their children's
education can be invested some where else, at higher
interest rates. Then, when the student loan became due,
parents can pay it off with the money they had set aside¡ªto
pocket the difference in interest rates.
To politicians and the media, however, the rapidly growing loans
showed what a great ¡°need¡± there was. The fact that many
students failed to pay when time came to repay their loans
showed how ¡°crushing¡± their burden of debt has to be. In
reality, those who don¡¯t pay typically have smaller loans but
have dropped out of college before finishing. People who are
irresponsible in one way are always irresponsible in other ways.
No small amount of the deterioration of college standards has
been due to the increasingly easy availability of college to
people who are not very serious about getting an education.
College is not a bad place to hang out for a few years, if
someone has nothing better to do, especially if je/she is paying
for it. Its costs are staggering, but the taxpayers carry much
of that burden, not only for state universities and city
colleges, but also to an increasing extent even for ¡°Private¡±
Numerous government subsidies and loan programs make it possible
for many people to use vast amount of societies¡¯ resources at
low cost to themselves. Whether in money terms or in real terms,
federal aide to higher education increased several
hundred percent since 1970. That has enabled colleges to raise
their tuition by leaps and bounds and enabling professors to be
paid more and more for doing less and less teaching.
Naturally, all these beneficiaries are going to create hype and
hysteria to keep more of the taxpayers¡¯ money coming in. But we
would be fools to keep on righting blank checks for them.
When we way the cost of things, in economics. That¡¯s called
¡°trade-offs¡± in politics, it¡¯s called ¡°mean-spirited.¡±
Apparently, if we just assumed a different attitude, scarcity
would go away.