Government creates the next bubble in higher education

[Geee]

Washington Examiner:

James R. Harrigan and Antony Davies

A phoenix has risen from the ashes of the Occupy movement. As anger over the housing crisis wanes, protesters have returned home from their camps to find student loan bills -- one trillion dollars' worth. Ironically, it is now they who are looking for government bailouts -- and from a hole that government essentially put them in.

The impending student loan crisis, like the recent housing crisis, is born of government meddling, and promises to have similar results. But with the students, the coming bankruptcies will be much worse.

The anatomy of the housing crisis is simple. Years ago, the U.S. government decided that the path to prosperity was homeownership. When the free market did not provide what the government considered "enough" housing, the government used both carrots and sticks to force markets to lend more money for mortgages.

When private banks shied away from high-risk borrowers, the government instructed its enterprises, Fannie Mae and Freddie Mac, to direct more than 40 percent of their lending toward low-income borrowers. These two government-sponsored enterprises took lending risk away from private banks and placed it on the backs of taxpayers instead.

The government also offered tax incentives for people to take on more mortgage debt, and the Federal Reserve made mortgages cheaper by holding interest rates at historically low levels. Predictably, people rushed to secure cheap mortgages, fueling a boom in homebuying and causing home prices to soar over 400 percent from 1976 to 2010. When the rush tapered off, households realized they could not afford to pay their mortgages and declared bankruptcy in droves.