Yes, we have a student-loan-debt crisis. The problem has gotten much, much worse recently, and conservatives know that the heart of the problem is simple: most people are lousy at fiscal planning. We are lousy at saving: Social Security exists because people will not save voluntarily, so does Medicare, so does every known form of insurance. At the opposite extreme, we are lousy at spending: the student loan phenomenon exists because people (the parents or the kids) will not turn down a 5-figure loan for college even though they understand that they might never be able to pay off the loan and they will be haunted to the grave (and beyond) by debt collectors. People (parents or their kids) will borrow $200,000 for the kids to go to Princeton even though they know that Princeton probably won’t be worth the money and they won’t ever be able to repay the loans. Student loans – especially to borrowers who do not have substantial credit – look and feel like free stuff. Most people cannot resist the lure of free stuff. Especially a “free” a college degree.
Once upon a time, lenders tried to be prudent in offering student loans. But once the government started guaranteeing student loans and then moved on to taking over the student-loan business altogether, prudence vanished.. Once parents or their kid realized they could borrow the entire cost of room/board/tuition/expenses to go to the college of their choice, even in a situation where no sane lender would consider the applicant or his parents credit-worthy, two predictable things happened: (i) student-loan debt skyrocketed, and then (ii) college tuition (and other college expenses) skyrocketed. The kids and their families paid less and less attention to tuition and other costs, because they wanted immediate gratification didn’t have the discipline to think-through the long-term implications of their behavior. The colleges jumped on the opportunity to raise their prices; it is Econ 101 for a provider to keep raising prices as long as its customers let you get away with it.
So, what do the colleges do with all that newfound income, all those higher tuitions? Same thing you or I would do: they start spending it on things they like. They pay more to the faculty, more to the administration, more for sports and other recreation, more for buildings, more for everything. Each year they raise the tuition again, raise all the expenditures again, and claim, with a straight face, that they are barely breaking even – which is true, except they are breaking even at a way higher standard of living for themselves.
Examples? We all have our anecdotes; mine, as a really senior senior-citizen, is pretty startling: when I applied for admission to the University of Chicago Law School (then ranked #1 in the country), the tuition was $1,200 per year. This year, tuition at U of C Law is $66,651, which is about 55 times as much! On the other hand, the general U.S. cost of living today is only 7.8 times as much as it was when I went to law school. Had tuition gone up only as much as the general cost of living, tuition at U of C Law today would be only about $9,500 per year, not $66,651. The rest of the increase is entirely the result of the colleges realizing that they could raise their prices enormously without any meaningful diminution in the number of qualified applicants.
What is wrong with this picture? Plenty: for sure, university faculty and administration are loving all of this, as they are now wallowing in money advanced to them by the feds in the form of loans to students and their families. Of course a whole lot of those loans will never be fully repaid, and guess who bears the burden of that loss: you, the taxpayer; the feds booked the loans as assets when they made them, but when the unpaid loans are written off, that just emerges as a charge against the revenue of the feds. In other words, it becomes an add-on to our national debt; we, the citizens, bear the losses. In essence, the federal student loan program is just another money-laundering operation, moving money from the general (tax-paying) population into the hands of people who work for the schools and people who got, in essence, a free college education. The universities repay nothing; the burden is entirely on the families – and, eventually, on the taxpayers. The ultimate outcome bears a striking resemblance to what we would get if our public school system now included not just K-12 but college as well, even graduate schools. In other words, we have nationalized our entire educational system.
Do we have a better educational system as a result? On the evidence, hardly. We have known, for some time, that our K-12 outcomes are mostly 3rd-world standard, nearly useless, except for the small fraction of our children who are lucky enough to get their kids into good neighborhoods (for K-12 grades) or good colleges. (And of course even our elite colleges are increasingly becoming hideous exercises in teaching leftist propaganda, and not just in the social science courses; even in the STEM courses and colleges, the political stuff is ubiquitous if not totally stifling.)
Conclusion: we have squandered billions (trillions?) on a policy of massive income-redistribution, moving money from the general public to favored classes of educators and administrators, outside contractors, and especially those fortunate enough to be admitted to the better colleges. (Another scandal now in progress.) Sure, the money all gets spent somewhere, but certainly not in areas where it could be most productive for our economy and our society. The whole thing is a con, a scam, a racket.