College tuition prices are rising every year – faster than almost any other expense including health-care and food. The bad news for students is that post-graduation salaries have been practically flat! In a free market economy, this might lead to students seeking cheaper educational alternatives and driving down the price of learning, but government support of the student loan industry will preserve the ability for students to acquire the debt for the more expensive choices. Thanks to these specific government policies, there is very little chance that tuition costs will be coming back down.
While most debt and credit markets seize up, the student loan industry is mostly guaranteed and insured by the federal government. Even though some companies have been leaving the student loan sector, the government is expanding its own direct loan program to ensure that the system of loans for college stays intact. If students were unable to find loans, schools would be forced to immediately cut costs and offer lower tuition rates to keep enrollment up.
Yet for some reason, lower costs seem strange to the American economist or consumer – we often demand the best, we demand the most, and somehow we still act surprised when we can't afford to pay the bill for that dream product we just custom -ordered. That lack of money is never seen as a problem – as long as it is easy for the consumer to acquire loans. Everything that made the housing bubble a nightmare is still playing out in higher educational financial statements …
As long as those easy loans are available, colleges have little incentive to cut costs in outside-the-classroom activities like social programming, semi-competitive sports teams, and lavish furnishings. If there were no government safety nets, students could still find loans if the lender felt that the student would actually be able to pay it back after graduation. This means more students and student lenders would choose local and cost-effective schools. Competition for funding would even ensure that the smartest and hardest working students get enrolled first.
Ideally, everyone who wants to go to college should be able to – and to some extent the student loan programs have helped to provide that opportunity. Unfortunately, it is showing signs of an unintended consequence that would quickly undo that benefit and make college ultimately unaffordable for a large part of the population.