Government can't reduce cost of education
Jun 20, 2013 | 2357 views | 0 0 comments | 140 140 recommendations | email to a friend | print
To the Editor:

I agree with your recent editorial bemoaning the cost of a college education and the burden of student debt borne by graduates. I join you in urging Congress to act quickly to keep the interest rates on existing loans at lower, more affordable rates. However you closed the editorial urging the government to “then find ways to lower the costs of higher education.” The government cannot accomplish this. In fact government involvement is one of the causes, perhaps the primary cause of college cost inflation.

College cost inflation is rooted in the availability of student loans at attractive rates. Today, virtually anyone can get unlimited funds at subsidized interest rates to pay college costs. The young financially inexperienced students signing up for these loans do not understand the long-term burden they are accepting, nor should they be expected to. Colleges charge outrageous tuition fees because they can. And they can get away with this because the people paying for it do not understand how much it costs. Government involvement by providing virtually unlimited funds and low interest rates has not enabled more students to go to college – it has enabled colleges to raise the price and have students mortgage their future to pay it.

We have seen this before.

For years before the financial crisis of 2008, the Federal Reserve kept interest rates and thus mortgage rates artificially low. The lower rates gave buyers more buying power and this was intended to make housing more affordable. It didn’t: it just made house prices spiral out of control creating a bubble. And the bubble burst with all the unfortunate consequences of recent years.

Government intervention through subsidizing interest expense does lower the cost of anything. It just enables the provider of the goods or services to raise the price without fear of losing customers. We are facing a bubble in student loan debt. If this continues to inflate as it has in recent years, we all know what happens next.

Michael Recca

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