Why Student Loans Are a Bad Idea And Actually Hurt Students

Lecture Hall

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College tuition costs have been skyrocketing and the more they go up, the more the government tries to help make college more affordable. Americans owe $1 trillion in student loans, even more than they owe in credit card debt. The federal government has been involved in student loans since 1958, either by guaranteeing loans made by private banks or by giving out loans themselves. Tuition rates have been increasing at about twice the rate of inflation, and still, proponents of federal student loans have yet to connect the dots.

Their intentions are good, but the government’s involvement is precisely what has resulted in the rise of tuition costs. Why do schools continue to increase their prices every year? Because they can. The government gives the schools whatever money they ask for, because “we must help everyone get a college degree.” If the government were to give everyone money to buy computers, the price of computers would also skyrocket.

College Tuition Inflation

If you support the government’s involvement in student loans you are unknowingly supporting the transfer of wealth from the taxpayers to the schools. The schools are the real beneficiaries here, not the students. The students are accumulating a tremendous amount of debt for a service that is extremely over-priced, and in many cases, worthless.

For a while, private lenders were also greatly benefiting, as the government used to guarantee their loans. This meant lenders didn’t have to care who they were lending money to and for what type of degree, because if the student defaulted on the loan, the government would be there to pay them. This is no longer the case. Since 2010, the Department of Education has been administering the federal student loans directly, and giving the money to the schools rather than to the bankers. They realized they were enriching the banks at the expense of the taxpayers. They somehow fail to realize they have not solved the problem. They are still enriching the schools at the expense of the taxpayers, and rather than make college education more affordable they are doing the opposite.

If you want any good to be as cheap as it can be, you need to allow for competition. Without government loans, the schools would be forced to lower their prices lest they lose customers. Today, they are being guaranteed customers regardless of how expensive they make their service.

It is ironic that those who advocate for the elimination of government student loans get accused of not caring about the students, when in fact it is the proponents of government loans that are ensuring that students pay the absolute highest price for their education.

Another major consequence of government loans is that they make it attractive for students to pick the wrong majors. The interest rates on federal loans are the same regardless of your choice of major or how good of a student you are. Why is this a problem? It makes it very easy for students to go into fields in which the demand for labor is very low. It weighs all degrees the same.

If there is a high demand for Software Engineers in the economy,  loans for this type of degree should have better terms (e.g., lower interest rates) than loans for Interior Design degrees, for example. This would encourage more people to pursue Software Engineering careers. If, on the other hand, you encourage students to get degrees for which there is no demand, all they will be left with is a pile of debt and no job.

Should the solution be that the government start distinguishing between the different types of degrees? No. The solution is for the government to stop lending altogether. In a free market, where only private companies are giving out student loans, the terms of the loans would automatically differ between the different types of careers being pursued.

Since private lenders are in the business of making money and they want to make sure the students will be able to pay back their loans, they would automatically make it harder for students to obtain loans for degrees for which the demand is low.

This is all assuming you would need a loan to go to school. If the price of education were allowed to come down, most people would be able to attend college just fine without having to borrow anything. And if you insist on getting a degree in a field that does not have many jobs available, the price of your education would be even cheaper because the demand for that type of degree would not be very high.

This student loan bubble is certainly starting to look a lot like another bubble that burst not too long ago. Ignorants in government, and all over, thought every American should own a house. A great way to make that happen, they thought, was to have the government make it easier to obtain mortgage loans. That ended well, didn’t it? Many of those people the government tried to help have actually lost the houses they couldn’t afford in the first place, and they are now in worse shape than they were in before.

Is it a coincidence that everything the government tries to make more affordable actually costs more and more every year? Houses, health care, education…When does it become obvious that the laws of Economics cannot be broken? We don’t need the government to make education affordable. Do you want to help students? Get the government out of the way and step back. They don’t need your help. The only ones the government is helping by sticking their nose in this are the schools.

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  • Nicely done—it is a triumph of marketing that government maintains its perception of legitimacy.

    It is a narcotic, a drug, a false prophet and idol that tricks people into thinking it is a savior.

    • It’s pretty frustrating when the same people that do you harm are the ones convincing you they have your best interest at heart.

  • tuition prices are raised because Republican state legislative and executive branches CUT FUNDING TO HIGHER EDUCATION. period.

    • Sorry, you can’t just make up your own economic laws to win an argument. When people have less money to spend on a product, that product’s price decreases, it doesn’t increase. The sellers find ways to offer the product cheaper when they realize they cannot sell it at the higher price. Your claim is as ridiculous as saying that when you drop a penny, it falls upwards. If it were true that funding for higher education were being cut (which it isn’t), then prices would actually be dropping.

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  • WTFITSAY

    So if state funding(not student loans) that goes directly to the school is cut, the school would lower their tuition?
    That makes no sense by your logic.
    They aren’t cutting funding for the student loan program, they cut direct funds that go straight to the schools.
    If 80% of their profits come from student loans and 20% from state funds, and the state cuts 5% of those funds from the budget, guess who’s making up that lost income. That’s right, students and their government loans.
    Because state universities know that they have a guaranteed income, they spend money in whichever way they please. Outrageous payouts to the deans, sinking money into useless buildings, hotels, FUCKING WATERFALLS AND ART PIECES AND LANDSCAPING. It’s utterly ridiculous what universities spend money on every year.
    Fuck if they would pay their fucking teachers a decent wage though.
    I’ve been to many universities. They spend money like it’s water running through their fingers.
    Students take a back seat to the shitstorm that has become college. A constant battle to maintain profits between the school and the state.
    So, yes, in part, cutting funding increases costs for students, and taxpayers.