Sunday, April 28, 2013

Student Loans

Interviewer: What you've got is college experience. Not the practical, hard-nosed business experience we're looking for. If you'd joined our training program out of high school, you'd be qualified for this job by now.
Brantley Foster: Then why did I go to college?
Interviewer: You had fun, didn't you?
--The Secret of My Success

The escalating student loan situation exemplifies what occurs when government meddles in markets. Such government intervention may be motivated by good intentions, i.e., "more people should be afforded a college education."

But good intentions do not justify the use of force to enact a program. In this case, resources in private hands earmarked for other uses have been confiscated by government in order to fund student loans.

Moreover, getting more people into college necessarily requires lowering barriers to matriculation. This is primarily accomplished by government sponsored loan programs that make it easier for students to borrow.

College enrollment is therefore subsidized. From ECON 101, we know that when behavior is subsidized we will get more of it. Demand enters the market. This pushes tuition prices higher. It crowds the classrooms and reduces teacher:student ratios and encourages colleges to add capacity.

It also results in a glut of college graduates. The market cannot absorb the oversupply except at lower prices. Lower prices mean lower salaries for college grads. Lower salaries mean less income that can be applied toward paying back student loans.

Sadly, this situation was predictable up front. Similar to its outcomes in other aspects of welfare and warfare, central planning in college education has grossly mis-allocated resources in a manner that stunts standard of living.

2 comments:

dgeorge12358 said...

A tax-supported, compulsory educational system is the complete model of the totalitarian state.
~Isabel Paterson

dgeorge12358 said...

There is, in fact, only one solution: the state, the government, the laws must not in any way concern themselves with schooling or education. Public funds must not be used for such purposes. The rearing and instruction of youth must be left entirely to parents and to private associations and institutions.
~Ludwig von Mises