Student Loan Bubble Is Popping In Florida
Antony Davies and James Harrigan at George Mason University’s Mercatus Center note that Florida is suffering through another subprime loan crisis, only this one has to do with student loans instead of mortgages.
Tuition rates are soaring, as is student loan debt, and it’s all the government’s fault:
Congress established Sallie Mae in 1972 to encourage banks to offer more college loans. The Affordable Care Act of 2010 allowed the government to loan money directly to students. The following year the Taxpayer Relief Act extended tax breaks to student loan borrowers. By law, lenders cannot deny Stafford and Perkins loans (types of federal student loans) based on the borrower’s credit or employment status. What other reason is there to deny a loan? Predictably, the Federal Reserve kept interest rates at historically low levels, making college loans cheaper. And the price of a college education soared.
Government meddling has again separated profit from risk. Universities get to keep the tuition profits while taxpayers are forced to shoulder the risk of students not paying back their loans.
In the end, this bubble will be worse than the last. Unlike homeowners, students facing crippling debt cannot sell back their asset (their education) or declare bankruptcy. The simple fact of the matter should be obvious by now: Government created this mess, in both instances, by forcing the market to provide loans it would not have granted otherwise. This is the breeding ground for bubbles, and this one will burst just as they all do.
Whenever the government tells us they’re going to make something more affordable, we ought to get a chill down our spines. The government sought to make housing more affordable and gave us the subprime mortgage crisis. They’ve tried to make higher education more affordable, and we have the student loan bubble. Now that the Supreme Court has upheld Obamacare, the Democrats’ gargantuan effort to make health care affordable, we can expect about the same results.Tags: higher education bubble, student loans