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Featured 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 taxpayer¡¯s money.

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 under $9,000.

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 government programs.

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 limits.

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¡± institutions.

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.
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