How Student Loans Drove Up Tuition Costs

By: Grace Walter

The American federal government from its inception has expressed powers that they do not have the right to express. One of these powers they respectively gave themselves is the power to give out student loans to practically anyone who plans to go to college and needs a loan. Currently, as of November 2021, 44.7 million Americans have student loan debt. 42.3 million of those individuals are in debt to the federal government. The Biden administration has graciously forgiven, so far, $11.5 billion in student loan debt for over 580,000 borrowers. Many would say this is a victory for these individuals, truthfully this is not the case. 3 major consequences arise from the government 1) loaning money to Americans, 2) canceling or forgiving the debt that occurs from the loaning of money.

  1. Ronald Regan’s former Education Secretary William Bennett supported the idea that increases in federal aid only help raise the price of tuition for colleges and universities because they become confident that the federal loans and aid would help “cushion” the increase. This assertion is not far off from the truth according to data from recent years. In 2016 Grey Gordon and Aaron Hedlund conducted a “quantitative model of higher education” to explain the rise in college tuition from 1987 to 2010. From 1987 to 2010 there was a 106% increase in overall tuition and 102% of that increase is solely because of changes to the Federal Student Loan Program (FSLP). They concluded that the “Bennett” theory has validity based on the cumulative data they reviewed. Stephanie Riegg and Claudia Goldin analyzed to see the difference in tuition between T4 schools, which participate in Title IV of HEA of 1965, and NF4 schools that do not participate. They controlled for the program, county, year fixed effects, enrollments, program length, etc. they found a “large and significant” difference between the two kinds of schools tuition. T4 schools charge 78% more than NT4 schools. This “Bennett” hypothesis has been proven correct through an honest review of tuition prices for decades.
  2. There is a massive moral hazard when it comes to forgiving student loan debt and government loaning money to individuals. For one, forgiving the debt of those who made poor decisions is not the role of the government. It is not ok nor fair for the government to reward a person for making poor financial decisions. Let’s say a certain individual ends up with $150,000 in student loan debt, but because they choose a poor degree they only end up making $60,000 dollars a year. It will take them over a decade to pay that off. Everyone can acknowledge this is not an ideal situation, but the consequences of their choices are theirs to bare, not others. Elizabeth Warren (M-D) and Bernie Sanders (V-I) who are notorious statists have proposed new taxes on the “rich” to make up for the cost of forgiving debt. They believe that stealing from the rich is somehow justifiable because it helps those drowning in student loan debt. What they don’t seem to get is this forces responsible and smart individuals who either didn’t take out loans or already paid theirs off to pick up the slack of those who made poor decisions consciously and voluntarily. It is not the financial responsibility of any individual to make up the money for a collective group of people who made poor decisions. If the government continues to forgive student loan debt as they are now, and if they soon do it on a more massive scale it will only signal to the irresponsible public they can get away with these poor financial choices. Young students will continue to borrow as much as they can because the government has practically incentivized them to do so.
  3. All of these decades of loaning and forgiving the government has created a massive dependence where millions of people rely every year on the government to be their guaranteed loan service. This has granted a great amount of power to the federal government while simultaneously destroying the financial conditions of millions of people throughout the years. The federal government has also created an outstanding monopoly on student loans. The percentage of all student loans held privately is 7.71%. Student loan debt sets up your financial stability for the rest of your life after you get out of college. If you did not make the integral choices in college you will suffer to pay back the debt you owe. This only brings power to the government and its goal to make you forever dependent. The outcome of the government getting involved in student loans and subsidizing post-secondary education progressively more and more has had dramatic effects that have only gotten worse with the more government has intervened. By taxing rich Americans and just throwing money at the problem will not fix the initial issues. We need to address the extremely high prices of higher education and why it has been put on a pedestal as the only legitimate option after high school. We also need to instill in our youth the value of financial responsibility that saves us from potentially taking out deadly loans.

Overall, what truly needs to happen is a mass exodus from the government. They should have never had the power to ever provide loans in the first place. A gradual step back from recent expansions in who, why, and how much you can get would help every American financially and it will help them think harder on what they really want to do with their future. Unfortunately, since the government has raised prices so much, the amount of people who can actually afford to go to these universities will drop sharply. The government needs to assess the issue and see the carnage they have created. The government first needs to stop loaning out more than what they know the individual can pay back. Even better, they should end the Federal Student Loan Program all together, but it’s a much greater step. Another pragmatic solution would be tax cuts for those with crippling student loan debt so they have some financial hope. Something else that should have been done decades ago is to teach individuals not to find out what you want to do after college, but before you go. There are plenty of jobs you don’t need a meaningless degree for. There are options outside of our nation’s colleges and universities.

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