Thanks to greedy capitalists millions of young people have too much loan debt. Do you believe that? Many people do; that or some variation on the theme. It is actually important for several reasons. Shall we look into the issue?
The people who believe greedy capitalists are keeping young people deep in debt are believers. They have not done their homework. But they believe capitalists are evil. It’s part of their theocracy. This is a mistaken belief… Here’s why I say this.
It does no good to blame anyone. What is important is to understand the facts of the situation. That is a requirement in order to make an effective plan to change things. The implementing action in execution of the plan. Now, let’s ask the first question.
So, who is responsible for the student loan debt mess which has been created? If you guessed the federal government you would be correct. Did you know the origination of most student loans is from the federal government in America? Don’t blame capitalists.
Good intentions, good intentions, good intentions
Yes, the cost of higher education has been rising. And it has been going on for a long time. The rising cost of student lending comes from good intentions with unintended consequences. The source is the Federal Family Education Loan (FFEL) program whose inception was back in 1965.
Under FFEL the federal government agreed to pay subsidies to private banks. The intention was to get them to underwrite student loans. The U.S. government became the guarantor of these loans. Your government put you, the tax payer on the hook for education loan default.
What that means is: When a student defaults on a loan the U.S. government takes the loss, not the bank. Got that? A private individual defaults on a loan. The distribution of the loss goes to all of the taxpayers. That’s what many think of as free money. Money is never free. Your taxes go up with every education loan default. Say thank you to your representatives and senators. You are paying the loan debt of people who went to college and did not repay their loans.
The intention was to help lower income people get access to affordable loans. But as they say: The road to hell is paved with good intentions. Since then the program has been expanding and is subject to distortions. Millions of young people have too much loan debt. Today we have a student lending industry. Kind of… we’ll get there.
Guarantees and more money, more money, more money
With a full guarantee by the government banks no longer needed to worry about losing their investment. So, they simply gave money to everyone who came in and signed up. It no longer mattered whether the borrower was acquiring the means to repay the loan. The concept of value was removed from education.
The result became that more money was flowing into higher education. It did not take long before the schools woke up. They began to realize banks were pumping more money education. There were more students getting more money. So they did what all good businesses do.
When you have more customers and the customers have more money, you raise your prices. Tuition rates and college costs rose. The incentives to keep quality high and costs low were gone… This was done By The Government. That’s right your federal government is responsible for the rising education costs.
In the 1980’s and 1990’s Colleges and Universities began to campaign. They were supporting a pilot direct student lending program. Can you feel the hand going into your pocket? This was sold as a savings to tax payers.
Just cut out the middle man, eliminate competition and value
The argument made was: Cutting out the middleman, the banks. It would save billions. Those savings would be plowed back into education, of course they would… Silly taxpayer. Over time the number of students participating in federally guaranteed loans went up. It started at about 20%. Banks were driven out of education lending.
By 2010 the federal government was the largest student lender in the nation. This was done by promising affordable higher education. A 100% guarantee accompanies the expansion of the program by the federal government. What could go wrong? We’re from the government and we are here to help.
Then came expansion of income based repayment plans. This gem of an idea allows students to structure their loan repayment based entirely on their income. It also lets students who work for non-profits and government agencies get loan forgiveness. Gone was the need to learn something you could use to feed yourself.
Creating government slavery while blaming the capitalist
So by working for 10 years, full time for the government, you get out of your student debt. This is the functional equivalent of indentured servitude. Even better yet what you have done is to effectively shift the cost of education out of the private sector. Add in section 8 housing and we damn near have slavery.
Now do you understand? This is how, by removing competition and the concept of value from education, we have created unintended consequences? To make it the more galling, we are blaming capitalists for what big governments, socialists, have done… to themselves which they are complaining about.