It shouldn’t come as any surprise that young people cited student loans and other college expenses as their most pressing financial worry in a recent Gallup poll, but the degree to which student debt holds Americans of all ages hostage is truly frightening. The poll finds that a plurality of all adults under 50 are more concerned about college costs than healthcare, housing, credit card bills, retirement savings or any other financial obligation.
Government subsidies have helped inflate this massive academic bubble, and reform to the federal student loan system is the only viable way to reduce college costs and alleviate the financial stress on young people. By attempting to make college “affordable” for everyone, the government has made far too much credit available, giving universities carte blanche to raise tuition at will. So long as Uncle Sam keeps underwriting loans in a misguided attempt to put everyone’s children through college, tuition rates will continue to rise and students will continue to rack up trillions in debt.
Most interest rates — including those for mortgages, car loans, savings accounts, etc. — rise and fall with the market, but the federal government tightly regulates student loan rates. Student rates are locked in at 3.4 percent, an artificially and unsustainably low figure entirely out of sync with today’s economic realities. Congress has the best of intentions in keeping interest rates low to encourage young people to pursue higher education, but these low rates aren’t “free” — they’re heavily subsidized by tax dollars, which end up in the coffers of colleges and universities when indebted students pay tuition bills.
Low, federally-subsidized interest rates are allowing more people to attend college, but the overwhelming availability of student capital encourages 18-year-olds to borrow huge sums of money, often without adequately weighting the costs of a four-year, debt-financed education against the benefits of the degree program they plan to pursue. Not all degrees are created equal, and not all degrees are worthy of a $250,000 investment — or the taxpayer support that subsidizes it.
For example, in job-rich fields like nursing and engineering, students can reasonably expect to graduate into a well-paying job and immediately begin to pay down their accrued debt. But the prospects aren’t so rosy for arts and humanities students, as many of these majors have unemployment rates well into the double digits.
A bank wouldn’t approve a mortgage for an unemployed women’s and gender studies major, but the government-subsidized loan industry is happy to encourage an 18-year-old planning to enter the field. This wouldn’t make sense in the private sector, and it’s making college more expensive for everyone else by maintaining the flow of cheap cash to university coffers.
It’s time for student loans to be subject to the same common-sense standards that all other loans are. While it’s great that loans are available to anyone, regardless of background, the government shouldn’t simply make money appear for anyone who asks for it. Instead, prospective students, like all other borrowers, should have to prove to their creditors that they will be capable of repayment. Such a simple requirement would do a world of good for young people, as before leaping into six figures of debt, they’d be required to run the numbers and seriously consider the costs and benefits of their education.
It seems counter-intuitive to reduce the money supply available to college students in order to solve the debt problem, but simple changes to the system would result in fewer young people making poor financial decisions and fewer unemployed 20-somethings holding degrees in environmental studies with a quarter million in debt.
If the government decides to start acting like a responsible lender, tuition rates will level off, and we can begin to conquer the student debt mountain.
