Too much agreement means more entitlements

Why is the cost of college increasing so quickly?  


In part, I believe it is because the government continues to provide cheap loan terms to students.  If loans were more expensive, demand for high-priced colleges would go down, and these institutions would have to reduce their prices (or at least slow the rate of tuition increases).  


Additionally, it is not clear to me why the federal government needs to provide loans - private companies would be willing to make these loans if they believe they are likely to be repaid.  If they are unlikely to be repaid, why should the tax payers be left taking the loss on these "bad bets"?  I suppose one could argue that the benefit to society associated with disadvantaged students achieving upward mobility outweighs the financial loss of education debts that go unpaid.  This is unpersuasive - if the upward mobility occurs, it would allow for the repayment of education debt.  If students are regularly unable to pay, this would indicate that this upward mobility is not occurring.

Too much agreement means more entitlements
By George F. Will, Published: May 16

Bipartisanship, the supposed scarcity of which so distresses the high-minded, actually is disastrously prevalent.

Since 2001, it has produced No Child Left Behind, a counterproductive federal intrusion in primary and secondary education; the McCain-Feingold speech rationing law (the Bipartisan Campaign Reform Act); an unfunded prescription drug entitlement; troublemaking by Fannie Mae and Freddie Mac; government-directed capitalism from the Export-Import Bank; crony capitalism from energy subsidies; unseemly agriculture and transportation bills; continuous bailouts of an unreformed Postal Service; housing subsidies; subsidies for state and local governments; and many other bipartisan deeds, including most appropriations bills.

Now, with Europe’s turmoil dramatizing the decadence of entitlement cultures and with American governments — federal, state and local — buckling beneath unsustainable entitlements, Congress is absent-mindedly creating a new entitlement for the already privileged. Concerning the “problem” of certain federal student loans, the two parties pretend to be at daggers drawn, skirmishing about how to “pay for” the “solution.” But a bipartisan consensus is congealing: Certain student borrowers — and eventually all student borrowers, because, well, why not? — should be entitled to loans at a subsidized 3.4 percent interest rate forever.

In 2006, Democrats, trying to capture control of Congress by pandering to students and their parents, proposed cutting in half the statutory 6.8 percent rate on some federal student loans. Holding Congress in 2007, and with no discernible resistance from the compassionately conservative George W. Bush administration, Democrats disguised the full-decade cost of this — $60 billion — by pretending that the subsidy, which now costs $6 billion a year, would expire in five years.

The five years are up July 1, and of course the 3.4 percent rate will be extended. Barack Obama supports this. So does Mitt Romney, while campaigning against a “government-centered society.” What would we do without bipartisanship?

The low 6.8 percent rate — private loans for students cost about 12 percent — was itself the result of a federal subsidy. And students have no collateral that can be repossessed in case they default, which 23 percent of those receiving the loans in question do. The maximum loan for third- and fourth-year students is $5,500 a year. The payment difference between 3.4 percent and 6.8 percent is less than $10 a month, so the “problem” involves less than 30 cents a day.

The 3.4 percent rate applies to only one category of federal loans, but because the Obama administration has essentially socialized the student loan business, federal loans are 90 percent of student borrowing, and this “temporary” rate probably will eventually be made permanent for all federal student loans.

Unsurprisingly, Obama has used this loan issue as an occasion to talk about himself, remembering the “mountain of debt” he and Michelle had when, armed with four Ivy League degrees (he from Columbia, she from Princeton, both from Harvard Law), they graduated into the American elite. The Atlantic’s Conor Friedersdorf notes that if Washington is feeling flush enough to spend another $60 billion on education in a decade, it could find more deserving people to subsidize than a privileged minority of college students who are acquiring credentials strongly correlated with higher-than-average future earnings.

The average annual income of high school graduates with no college is $41,288; for college graduates with just a bachelor’s degree it is $71,552. So the one-year difference ($30,264) is more than the average total indebtedness of the two-thirds of students who borrow ($25,250).

Taxpayers, most of whom are not college graduates (the unemployment rate for high school graduates with no college education: 7.9 percent), will pay $6 billion a year to make it slightly easier for some fortunate students to acquire college degrees (the unemployment rate for college graduates: 4 percent).

Between now and July, the two parties will pretend that it is a matter of high principle how the government should pretend to “pay for” the $6 billion while borrowing $1 trillion this year. But bipartisanship will have been served by putting another entitlement on a path to immortality.

Campaigning recently at Bradley University in Peoria, Ill., Romney warned students about their burden from the national debt, but when he took questions, the first questioner had something else on her peculiar mind: “So you’re all for like, ‘Yay, freedom,’ and all this stuff and ‘Yay, like, pursuit of happiness.’ You know what would make me happy? Free birth control.”

While awaiting that eventual entitlement, perhaps she can land a subsidized loan so she can inexpensively continue to hone her interesting intellect.