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The Real Cause of the Higher Education Bubble

As the yahoos at One Wisconsin Now spend the weekend trying to cover the ass of Sen. Tammy Baldwin (Baldwin signed onto a Democratic proposal which killed a long-term, bipartisan agreement being finalized in the Senate over the “crisis” of seeing student loan rates go from a low of 3.4% to 6.8%.  Sen. Ron Johnson had signed onto the bipartisan agreement by the way…must be so hard for OWN to attack Baldwin, you know, with the Kraus connection to her campaign and all. ), the InstaPundit, Glenn Reynolds once again highlights just why college costs the way it is.

It has nothing to do with loans, or state spending, or the typical litany of liberal claims.  It’s a combination of two things: The federal government telling universities it will subsidize student loans while a student is enrolled; causing colleges with an open excuse to escalate their costs knowing full well that it is the federal government (Banks were removed from the equation with ObamaCare by the way, something OWN has finally started admitting in their press releases) truly covering the bills.  Secondly, schools have used this money to increase their administrator class to insane bounds.

The end result, students went from having a manageable, but high student loan debt, to one that now buries them.

But hey, trust the government we keep getting told, right?

Anyway, here’s Reynolds:

In truth, America’s student loan problem won’t be solved by low interest rates—for many students, the debt would be crippling even if the interest rate were zero.

If we want to solve the very real problem of excessive student-loan debt, college costs need to be brought under control. A 2010 study by the Goldwater Institute identified “administrative bloat” as a leading reason for higher costs. The study found that many American universities now have more salaried administrators than teaching faculty.

Another way to approach costs is to remove the incentives for universities to accept government-subsidized student-loan money regardless of a student’s prospects of graduation or gainful employment. Under the current setup, incentives run the other way: Schools get their money up front via student loans; if students are unable to pay the loans back, the burden falls on taxpayers (if the loan was “guaranteed” by the federal government), and the students themselves, while the schools get off scot-free.

A serious student-loan fix would change this incentive. First, federal aid could be capped, perhaps at a national average, or simply indexed to the consumer-price index, making it harder for schools to raise tuition willy-nilly. Second, schools that receive subsidized loan money could be left on the hook for a percentage of the loan balance if students default. I would favor allowing students who can’t pay to discharge their loan balances in bankruptcy after a reasonable time—say, five to seven years, maybe even 10—with the institutions that got the money being liable to the guarantors (i.e., the taxpayers) for, say, 10% or 20% of the balance.

You can bet that under this kind of a rule, universities would be much more careful about encouraging students to take on significant debt unless they are fully committed first to graduating, and second to a realistic career path that would enable them to service that debt over time. At the very least, schools would be more likely to warn students of the risks.

Even thinking about the impact of such a “skin in the game” rule for colleges helps to illustrate the irresponsible—even, in Elizabeth Warren’s words, “immoral”—way that colleges up to now have dealt with costs and with debt. If lawmakers were serious about helping students pay for college, Congress would be considering more than simply continuing low interest rates on ever-higher student-loan balances.

Of course, what those harping about student loan debt are really hoping for is a massive federal debt forgiveness program — a bailout per se — but know that such a program would be politically unpopular, especially in a world where no one feels sorry for an “Art History” degree graduate who now works at Starbucks for a living.

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