The Incredible, Rage-Inducing Inside Story of America’s Student Debt Machine
I agree totally. Colleges are raising tuition for one simple reason. The individual is not actually paying, and they know it. They know the gov't will hand out the money. And Bernie Sanders wants free tuition. Yeah, ok.
While I don't agree with everything in this post, I think it does raise a point that I don't think anyone else has addressed. We all know about the cost of college and how difficult it can be for students and their families - the need for a comprehensive and thoughtful student loan program is necessary under these dynamics. But the underlying cost dynamics bear consideration - in fact, college tuition is not a true market.
When all American students have access to the government-guaranteed loan program, demand and affordability are artificially driven by that access to capital. In any market where the buyer has extremely easy access to capital, demand is supported and price levels are supported at an amount that roughly corresponds to the level of available capital. Some people call it a bubble, and I don't think that's quite the right concept.
But it is indeed price support and most institutions can plan on that price support. It certainly makes you wonder what would happen to tuition costs if the price support mechanisms were removed and a more genuine market were established. In the past, this question was academic - the risk of meaningful social costs of removing access to tuition money to examine whether the lack of price support would reduce the cost of education is just too great. I suspect, now, however, we can model some of these questions with advanced data analytics and modeling (I might do some research to see if anyone has done this). Of course a model is going to be based on how the inputs/variables are controlled - but a well made model could be insightful.
But with these dynamics, you have three parties: the school, the student, and the lender. And it seems that we have a structure that directly benefits the schools and lenders. The guaranteed loan program benefits the school because it supports tuition levels, the school gets paid - perhaps even artificially high amounts. And the program benefits the lenders because the amounts borrowed are high, perhaps even artificially - which means that interest revenues are increased and with virtually no risk because the loan program is almost completely guaranteed by the government. Perhaps ironically, though, the student doesn't benefit from the program - at least with respect to the cost. The price support dynamics drive tuition costs to the student - and in a lending environment, cost = debt. So the program supports tuition price, which is the same thing as supporting debt amounts.
That's the problem I have with the DeVos viewpoint, which seems to be that student loans are a business transaction entered into by adults and financial institutions and the government has no business playing with the rules that govern that on-going debt relationship and how it is managed, including collections. This viewpoint ignores the fact that the federal student loan guarantees to lenders drive the entire process and the amount of debt required of students.
It is not a true market, it is a market where the government provides price support to the institutions and removes lender risk - to refuse to support the interests of the third party to the equation, the students, seems both arbitrary and misplaced. When you consider that the entire purpose of the program in the first place is to help American students afford a higher eduction, as a matter of national interest, it seems that we have missed the target. Sure, we have made a college education more widely available, but we have also artificially supported cost levels, and the manifestations are becoming more and more problematic.