The College Catastrophe

You or someone you know is affected by the outrageous price of a college education. Tuition has risen completely out of proportion with the economy, and it’s a perfect example of the law of unintended consequences.

The idea that a college education made you “better” is one that appeals to an educated population and statistics bore out that people with college degrees generally made more money. So big government, with the best of all possible intentions got involved in an attempt to equal the playing field by giving out low interest loans to students.

The government asked the banks to give loans to students to go to colleges. Banks replied they were already giving out loans to anyone they deemed “risk worthy” because that was in fact how money lenders made money. The government complained banks weren’t giving out enough loans so everyone could go to college.

The banks replied “we don’t think everyone would be able to pay back the loan.” So government thought about this and then said “What if we GUARANTEED the loans? So that we the government would pay back the debts and the students would pay back the government?” The banks were incredulous. “You mean we will be paid back in full, plus interested for EVERY college loan we give out? So the more loans we give out the better?” “Yes!” smiled government, liking how nicely everything worked out.

So the banks started giving college loans to everyone they could, but they quickly discovered not enough students were able to get into colleges, and there weren’t enough classes in colleges for the non-Academic student. So the Banks told the Colleges “You are stopping us BOTH from making a TON of money. We need for you to admit more students and offer more classes.” Some colleges resisted based on academic integrity, but many college happily admitted more students and offered watered down versions of their classes. And some enterprising people realized there was unlimited guaranteed money to be made by opening their own colleges.

Colleges quickly became experts at recruiting students and helping them get loans. And now that more people could “afford” it, colleges could raise their prices. And then help students get more loans. And then raise prices. And then help them get more loans. A 4 year degree now takes 5 years. Colleges are happy to take your money to teach you a skill that has no practical value!

And who doesn’t like this? The banks love it, the colleges love it. The students love it for a while. Until costs keep rising, and some students realized they were getting ripped off.

But the Government had GUARANTEED the loans, so they intervened in the student loan market by using the law to protect banks, and prevented students from exonerating their loans through bankruptcy. America was founded on the idea of no debtors prisons. Your rights include being able to declare bankruptcy. For that you will suffer social consequences, but not criminal ones. That core right was removed for student loans. The government has changed the law to take away your right to default on student loans.

We can end this easily. Restore the people’s right to default. Student’s should have the right to default on a student loan just like a person can default on a home loan.

Of course the BEST solution is to get government entirely out of the education business. Instead let colleges fund financial aid on their own. If Colleges provide the financial aid loans to students, students no longer become just CUSTOMERS for Colleges, they become INVESTMENTS. If a University wants to make money, they can invest $200,000 of loans in a student in the hope that the student will pay them back with interest.

Then the college is motivated to make sure the student will get a degree and be able to pay them back. College might recruit more STEM majors and give them better interest rates because they know that these students will be able to pay them back more easily. And college probably won’t give ANY loans to students who want to study French literature because they are a poor risk to be able to pay back a loan.

And if the value of the education is worthless, the students can declare bankruptcy. This forces the colleges to do all they can to make sure that they are graduating students with both valuable degrees and who will have the ability and integrity to pay back their loans. For the FIRST time will have a financial incentive to make sure that the degrees a student graduates with is worth what what they are paying. A free market for education will bring more customers to those selling a great product.