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The Next Trillion Dollar Bubble


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Front Page Magazine:

One of the oldest economic maxims, “if you subsidize something, you get more of it” has created the next trillion dollar-plus bubble for which American taxpayers will be on the hook. The National Center for Public Policy and Higher Education discovered that published college tuition and fees increased 439 percent from 1982 to 2007, while median family income rose 147 percent. What is driving those costs? The idea that every high school graduate should attend college, and that government–meaning taxpayers–will guarantee loans made to those students.

The bill gets larger each year. Federal assistance to college students has risen 60 percent in the last three years from $97.7 billion in 2008 to $156.1 billion this year. This reflects a steady trend in making ever more money available to students who need financial aid in order to afford college. Back in the mid-1980s, there was a $2500 annual cap on the amount of federal student loans one could access to attend college. Thus, the maximum amount of federal debt one could amass in the process of getting a four-year degree was $10,000.

That amount has more than tripled. For most students, $31,000 is now available and, unsurprisingly, student debt has skyrocketed. The current average debt load for student borrowers is a record $25,250, even as those who attend high-tuition colleges are averaging double that, at over $55,000 per student. And as college tuition continues to rise, so do the number of borrowers. According to the College Board, more than 50 percent of all full-time undergrads at public colleges and universities are now full-time borrowers. At private nonprofit schools, two-thirds of students have outstanding loans.

As indicated above, more money available for borrowing by students has led directly to massive increases in tuition. Those increases substantially exceed the actual costs of the education itself. The Cato Institute reveals that it costs roughly $8,000 to educate an undergraduate at an average residential college, even as a private four-year university averages $37,000 to attend and a public equivalent averages $16,000. The resulting profits allow colleges to expand their facilities, their bureaucracies and their amenities, leading to higher tuition charges.

Hence, a vicious cycle: as college tuition costs increase, the government makes more funding available to students to pay for them. The more funding available–guaranteed by the taxpayers, so that colleges never face the possibility of a loan default–the more they can raise their tuition costs without ever having to worry about getting stiffed.snip
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