Leave it to Congress to find a way to tax the American Dream. This week the US Senate voted to subsidize the “land of milk and honey” dreams for those crossing the border illegally. Next week, however, the interest rate is set to double on federally backed student loans from 3.4% to 6.8%. Already, the federal government is profiting $57 billion per year on the current interest spread, in effect a “debt tax” on higher education.
Doubling this tax, along with spiraling growth in student loans ($2,853.88 per second), roughly equates to the $744 billion ($67k for each of 11 million illegals) cost over 10 years calculated for the Senate Immigration Bill. But basic economics dictates that the Amnesty / Student Loan equation will not remain balanced. Namely, if you subsidize something (illegal crossing) you have more of it, while if you tax something (college students) you have less of them.
Wait! Aren’t guaranteed student loans subsidies too?
The easy credit of student lending have been excellent subsidies, but for colleges and universities, not students. First, you have to pay back a loan. And, since government is making a healthy profit on the spread, it certainly isn’t a subsidized rate. On the other hand, for years colleges have been able to charge what the market will bear based upon their abilities to draw a crowd, more often than not with marketing pitches emphasizing the sizzle over the steak.
Return on the academic investment has taken a backseat to student life and sports teams. Go to the website of any major university and see what’s being highlighted on the front pages and what’s being soft pedaled on the back pages.
At the same time tuition has skyrocketed at both private and public institutions. When pressed, college officials point to the lifetime wage earning prospects for college graduates vs. non graduates. As a result for the past thirty years the cost of a college education has risen twice as fast as even medical care which was deemed at crisis level for Obamacare. What we have learned this decade is that easy credit distorts the true market, especially when based on false assumptions.
The housing bubble was inflated by the faulty notion that housing prices would always increase, along with an individual’s future earning power. Sound familiar? Unlike the housing bubble which is a capital investment. There isn’t a secondary market for diplomas and no liquidation value. The government has reinsured the debt by prohibiting bankrupting it off the books, even using the IRS as the collection agency until it is paid in full.
The bottom line? In a jobless recovery, raising the cost of admission to the job market is ludicrous. Graduates with huge debt will be priced out of the housing market, putting home ownership off and further weaking the economy. Already evidence points to an aging population with outstanding student loans. Government needs to get out of the student loan business and put pressure where it needs to be, reducing the cost of education for entry into the marketplace. Less brick and mortar and more technology is needed in the information age. Push universities and college to compete on outcomes, not input into the system.