July 22, 2019
Student loan debt is now on the order of $1.5 trillion, higher than either credit card or auto loan debt and exceeded only by mortgages. Why?
Well, not that terribly long ago, the word went out from our version of Caesar Augustus that higher education should be made “affordable.” And all the world should not be taxed, because that would be political suicide.
Many advanced nations manage to make higher education affordable, in some cases free, by paying for it with tax dollars. But that’s socialist. Of course, we do the same here in our public elementary and high schools. America’s main socialist features are public education and the military.
But college is seen as different. So, loan programs were made available. And what happened? Exactly what could have been expected.
Any Realtor can tell you that when mortgage rates go down, or financing becomes in other ways looser, housing does not become more affordable. Prices simply rise to reflect the new level of effective demand.
So the price of higher education rose inexorably, year after year at multiples of inflation, in order to accommodate the new ability of customers to pay. Since the majority of schools are not-for-profit, outlays had to rise too, in order not to show a profit. These commonly took the form of ever higher salaries and expanded staffing in the administration – the faculty, not so much. Expensive new physical facilities were built, the better to attract paying customers with glossy photos of the new student center, gym, or stadium in the equally glossy brochures junk-mailed to wealthy zip codes.
And then there’s the for-profit sector. Whoa, Betsy, let’s not even go there; or to the multi-million dollar salaries some schools pay to acquire star coaches.
Bottom line: providing easier financing doesn’t mean you’re making a product more affordable. It just increases the likelihood that more of the product will be bought.
MOE
M.I.C.H. – Modernity, Intelligence, Complexity, Humanity