Saturday, January 30, 2010

More Debt for Students, More Cash for Universities

While the White House continues to spew rhetoric about not passing on the debt burden to future generations, the President proceeds to make decisions that are counter-intuitive to that refusal. The “change we can believe in” that we have witnessed to date has, in reality, only been a renewal of the welfare-warfare state of presidents past.

In his 2010 State of the Union address, Wednesday evening, President Obama reasserted his administration's commitment to increasing the debt burden on America's students and raising tuition costs at the nation's universities when he unveiled his debt-for-diploma plan to “make college more affordable.” The President's plan would afford students' families a $10,000 tax credit and “increase Pell Grants” while requiring students to pay only ten percent of their income on student loans, with the remainder of the debt to be forgiven after twenty years. For students that chose to enter a “public service” profession – whatever that may be – the debt will be forgiven after only ten years of payment. But who, I ask, will pay the debt? Why, we'll just pass it on to the next generation!

This policy of subsidizing student loans stands to perpetuate the rising costs of education in America, just as the students of today's college generation are already feeling the debt pile on. USA Today reports that the average debt of peoples age 22 to 29 increased 10% over the five years from 2001 to 2006 to $16,120, and student loan balances rose to an average of $14,379, while nearly half of them have stopped paying on that debt.

Following his proposition for more student debt, President Obama sent an ironic message to America's schools:
It's time for colleges and universities to get serious about cutting their own costs.
If the government is going to make financial aid even more accessible to students, then why shouldn't the universities raise tuition? Consider this hypothetical: If every college student in America had sudden access to $100,000 for school, then why should we expect universities to only charge $1,000? The easy money policies of Washington will essentially make every student wealthy in regards to school tuition by making American students more likely to take on debt, affording universities the ability to make education more costly. Moreover, if every citizen of America is able to obtain a college degree, then that degree will become essentially worthless as an asset in the marketplace.

Now, consider the following – a scenario in which market forces put downward pressure on the costs of tuition: If the government were to no longer subsidize student loans then creditors would be more skeptical of lending students money, as students traditionally do not have high incomes or steady jobs. Consequently, if students were no longer able to afford college due to their inability to acquire loans, then market pressures would necessarily lower tuition costs – colleges and universities would not simply sit empty, they would have to lower their tuition in order to fill up their classes.

The politicians and policy-makers in Washington have repeatedly displayed a blatant ignorance of economic principle. Rather than allow markets to put downward pressures on college tuition, they opt to expand the welfare-state and subsidize education costs, further entrenching our students in debt. If our nation and its economy are to survive, we must abandon the savior-based economy and return to a savings based one – we must let the free market work to reign in the high costs of education. For to continue subsidizing our costly lifestyle at the expense of future generations is simply immoral.