The Real Cause of Student Debt

"Many know the basic facts about the tremendous rise in student debt: today nearly 37 million Americans owe over $1.2 trillion in debt, taken on to cover their higher education costs. But too few understand the real cause of the student debt crisis—federal and state governments’ systematic defunding of higher education over the past thirty years. Since 1981, the real cost of higher education has quadrupled largely because in real terms state funding for higher education has fallen 40 percent. Why? Because the pro‐corporate governing consensus – which both centrist Democrats and all Republicans endorse– says that in order to guarantee corporate profitability we need to give tax cuts to the corporations and the rich, while cutting the budget on social programs such as education, Medicare and Social Security..."

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commented 2016-03-31 03:54:26 -0400 · Flag
The financial bubble around student loans will never burst despite many attempts of getting the situation under control. The fluctuating interest rates is the main reason to why the loan amount could balloon up and remain there throughout the entire tenure. Students are the ones at the losing end having to figure out a way to settle the loan eventually.
commented 2015-01-12 22:52:25 -0500 · Flag
One of the reasons colleges and universities have been able to charge more is that third-parties-like federal and state taxpayers-are footing much of the bill. Many students are less sensitive to price increases than they would be if they had a more direct financial stake. This means that higher education institutions have few reasons to keep costs low to attract students.

Ohio University economist Richard Vedder discusses this problem in his book Going Broke By Degree: Why College Costs Too Much. “Students receiving grants or subsidized loans are far less sensitive to tuition increases than they would be if they were paying their own way,” Dr. Vedder argues. “Where entrepreneurs in a free, unsubsidized market seek to cut costs and lower their prices to lure new custom­ers away from businesses that are raising theirs, there is very little of that in higher education.”

To begin to create greater competition in education and return the federal government to its original role in higher education, Congress could refocus existing tuition aid programs on those who could not otherwise afford college. This would likely reduce inflationary pressures on college tuition while addressing the policy concern of expanding higher education access.

An increasing share of federal grant and loan subsidies are being provided to students from non-economically disadvantaged families. The College Board recently reported that “changes in student aid policies have benefited those in the upper half of the income distribution more than those in the lower half.” A recent Department of Education report found that 47 per­cent of students from middle-income families accepted federal loans in 2000, compared to 31 percent in 1993.

These subsidies are inequitable. They are largely paid for by taxpayers who don’t have college degrees-only one in four adults have bachelor’s degrees. Workers are subsidizing students from upper- and middle-income families, who can go on to expect far higher lifetime earnings.

It may be too much to ask for fundamental reforms, at least during Speaker Pelosi’s 100 hour agenda. In the short-run, conservatives would be wise to shift the policy discussion to the relationship between federal subsidies and rising college costs. Congress should investigate whether ever increasing subsidies for higher education lead to higher college costs.

In addition, they could call on universities to be more financially accountable to students, parents, and taxpayers. Greater financial transparency would lead to greater understanding about the problem of rising college costs and encourage state-policymakers and school leaders to explore ways to make higher education institutions more efficient.

American students should be wary of Congressional promises to make higher education more affordable. If history is any guide, federal spending and college prices will both keep climbing.
Ref: Dan Lips
published this page in Resources & Materials 2014-03-10 16:09:13 -0400