I’ve been reading a bit at various places about the Dems’ desire to cut the interest rate on student loans in half. This is supposed to reduce the financial burden on students and their families. But, as usual when one addresses only part of the problem, this is likely to have unintended consequences.
The introduction of legislation improving student loan coverage and raising aid limits in the late 70′s and early 80′s was one of the major contributors to the sudden northward turn in tuition cost curve (the figure at the right, which I forgot to source properly, but is from CNN). As a money commenter at MSN put it:
As we’ve seen with the health-care system, if people aren’t feeling the real cost of their purchases, they have less incentive to change their behavior. If you’re paying the full tab and Elite University jacks up its rates 10%, you might opt for Just Fine State. If enough others followed your lead, Elite might rethink its pricing.
…until higher prices result in a decrease in demand, there’s nothing to put a brake on tuition hikes.
Lowering the interest rate will just serve to further inflate tuition, just as lowering mortgage interest rates jacked up the price of houses. Colleges and universities have put forth many reasons for the unconscionable rise in tuition costs, but the fact is that their competition for the best facilities, faculty, and students is an ego trip funded at the taxpayer’s expense.
The post-secondary education system needs overhaul as badly as the rest of the educational system, and the student loan program should be reviewed as part of that overhaul.