Friday, May 31, 2013

The Real Cost of Easy Student Loans...

From Cato:
Federal aid for college students, it’s really no secret, is driven by what works politically, not what’s best for students. While logic and evidence strongly suggest that aid mainly enables colleges to raise their prices at breakneck speeds, politicians talk nonstop about aid making college “affordable.” Financial reality simply does not trump appearing to “care.” But on Friday, the Obama administration appears poised to take aid exploitation to a new level.
I've written before about the unintended consequences of easy-to-obtain student loans, but here it's been quantified.  Note how the costs of universities (both public and private) rises steadily as the amount of aid to students increases.  Numerous pieces of evidence (follow the links) provide a compelling case that the easy loans directly increase those education costs.  The main driver is simple marketplace economics: the universities compete with each other to attract students, who are, of course, the source of revenue for them.  The main way they attract students is to add amenities - and those cost money.  To pay for the amenities, they raise prices.  This is all basic capitalism, but the government has their thumb on the scale - by providing all that easy money, they've grossly distorted the “buying decision”.  Students and their parents don't have to make tough, financial-based decisions about where to go to school, as almost everyone can borrow enough money to go almost anywhere, if they can get accepted...

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