The Student Loan Conundrum |
I’m pivoting from my traditional satirical posts via “The Mirror Rearview” to comment directly about current events from an economic perspective. In this blog, I wish to specifically express an opinion about the student debt relief program recently announced by President Biden.
I oppose the debt forgiveness edict because I fundamentally believe in personal financial responsibility. Nonetheless, I also interpret Biden’s announcement as another example of a government policy gone awry with debt relief favoring a select class. Stepping back, the core problem is that Congress has passed thousands of laws that benefit explicit segments of the U. S. population and its taxpayers. The frequent implementation of executive orders by recent U. S. Presidents has added to the selection process of picking “winners” or “losers”.
President Lyndon Johnson initiated the student loan programs in 1965, when the cost of tuition was merely a few hundred dollars per year. Since then, the annual cost of a traditional college education has “mushroomed” to a current range of $25,000 to $75,000 depending upon the type and reputation of the institution. Would the cost have escalated so significantly without the expansion of the Federal student loan guarantee program?
In almost every example of Federal intervention in private business and industry, the initial objective of politicians became distorted, resulting in waste, corruption, and price inflation…as is the case of the student loan programs. Without the public support of the U.S. Government, most colleges and universities would have needed to manage their financial affairs more carefully and competed more intensely with other institutions to improve the quality of education for the future success of its graduates to be successful.
The solution to the student loan business is to remove the U.S. Government from the process and place the financial responsibility on the educational institution. Major universities have vast endowments to support a student loan program while smaller colleges could attempt to sell their loans in the secondary financial market, like auto loans. By granting loans, the educator would effectively need to place a bet on the future success of each student to pay back the debt. Over time, every educational entity would also need to adopt a regiment of budgetary control and product quality…or be forced to close.
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