Russell Moore: Colleges Are The Culprit In Student Loan Debacle
Monday, July 15, 2013
Student loan rates are out of control, having doubled on July 1. But is it merely symptom of a bigger problem?
GoLocal reported last week that the unemployment rate for teens in Rhode Island currently seeking work is roughly 25%. That means our teenagers will be short on spending money and long on time to find ways to get into mischief. About 1 in every 4 teenagers are facing a cruel summer.
This shouldn't be particularly surprising when so many adults have been forced to take lower paying jobs in the wake of The Great Recession.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTMeanwhile, those paying attention to Congress over the last few weeks know that the big issue right now are the student loan interest rates charged by the federal government.
Student loan rate hikes
The rates of all new government backed Stafford loans doubled, from 3.4 percent to 6.8 percent on July 1 because Congress failed (as is their habit) to come to an agreement to extend the program at its current rates.
Congress is currently working on a compromise bill that will tie student loan rates to the country’s rate of return on Treasury Bonds, plus an additional percentage to pay for administrative costs, with a cap at 10-percent. The deal would lower rates this year, but students would face higher borrowing costs if the economy improves.
It’s not like this program costs taxpayers money. These developments come at a time when the federal loan program is projected to bring the federal government a profit of roughly $51 billion according to the non-partisan Congressional Budget Office (CBO). That’s not too shabby. By contrast, at the close of fiscal year 2012, Apple recorded a profit of $41.7 billion.
So it’s obvious that the federal government plans to use this program to reduce the deficit on the backs of students—almost all of which are from lower middle class backgrounds and below. And while Democrats in the Senate have been more sympathetic to the plight of families with lower incomes, the plan passed in the Republican led House and was proposed earlier this year by President Obama.
Meanwhile, bailouts for super rich
It’s a nice touch by a federal government that’s completely out of touch. Let’s not forget this is the same government that blessed the Federal Reserve’s Quantitative Easing (QE1-3) programs. Quantitative Easing is just a fancy term that’s made to sound scientific and financial in order to confuse people. Quantitative Easing is the Federal Reserve’s practice creating money out of thin air and buying all the toxic assets from the mega banks so that those institutions can be solvent.
That enables those same institutions to pass out multi-million dollar bonuses to their executives. This allows the executives to funnel money into the politician’s campaign accounts. It’s quite a racket.
And the message couldn't be clearer. The federal government caters to the “too big to fail” (read: wealthy), and pushes around the proles who are busy watching reality television and obsessing about professional sports.
The Real Culprit
Those hard truths aside, I can’t help but point out that despite the injustice on student loan rates, Congress is, as per usual, addressing the symptom of a problem instead of taking on the real culprit, which is higher education inflation. And as usual, they’re doing it in a bipartisan fashion.
The truth is that since 1980, tuition for colleges and universities have soared past the inflation rate. At the same time, we’ve had bureaucrats and politicians, educators, business leaders and just about everyone else, push the misguided notion that college is the only gateway to the middle class.
That type of thinking has caused a drastic increase in the demand for higher education. When the demand skyrockets and the supply remains relatively stable, costs explode—this isn’t astrophysics. That economic truth has caused the inflation we’ve seen in higher education, which has, and will continue to hamstring Millennials.
A recent study by the Delta Cost Project found that tuition for a public four-year college in 1970 was, on average, $358 per year. In 2010, the average tuition for a public college was $6,695 per year. These numbers don’t take into account student housing and meal plans, which are roughly 10,000 per year at this point.
Inflation out of control
Had public college costs merely kept pace with inflation, the tuition per semester would have been $2,052 per year—not $6,695. That means students are paying almost $4,600 more than they would be had costs merely kept pace with inflation, instead of obliterating it.
It’s amusing to hear disingenuous Generation X types point out that the debt they paid on their student loans was higher in the eighties and nineties than the current rates. Don’t shed any tears for them. What they always fail to point out is that back in the nineties and earlier, they weren't dealing with the same higher education sticker shock as Millenials.
But have no fear, Massachusetts Senator Elizabeth Warren, who earned $429,981 as a Harvard Professor in 2010, says she is working steadfastly to make college more affordable.
The federal government needs to work with state governments to create policies that will better subsidize higher education as well as cut its costs. Also, the notion that every American should have a college education should be reexamined—and by reexamined I mean rejected. Sending people to college who would rather not be there only increases the costs by increasing demand.
President Obama has called for price controls in the past, though the call has gone unheeded. The president should develop a realistic plan to curb the rising costs of education at America’s state-funded colleges and universities. And it should be implemented.
If we don’t find a way to make college more effective and affordable, today’s youngsters are going to continue to have a rough go of it.
And that’s something society can’t afford.
A native Rhode Islander, Russell J. Moore is a graduate of Providence College and St. Raphael Academy. He worked as a news reporter for 7 years (2004-2010), 5 of which with The Warwick Beacon, focusing on government. He continues to keep a close eye on the inner workings of Rhode Islands state and local governments.
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