Saturday, November 18, 2006

Student Loans and Unintended Consequences

The Tennessean argues that Congress should act to lower interest rates paid on student loans, but that argument fails to understand the problems created by the unintended consequences of federal student loan programs.

Colleges and universities frequently maximize their own revenues by raising tuition and fees to levels that will match what students will be eligible to receive in loans. As a result, the widespread availability of student loans has had the latent effect of increasing tuition amounts and, as a result, student indebtedness.

The federal government would do better by expanding the availability of grants to academically qualified low income students, including non-traditional students, and by reducing the availability of student loans to others. Colleges and universities could then face the choice of rolling back levels of educational inflation that have far exceeded rising prices in other sectors of the economy or of seeing their campuses become much less crowded.

The Oracle admits that he has benefitted from a student loan which he is continuing to repay. Before he is accused of ingratitude, he would note that his own experience validates the above argument, as the institution from which he graduated has consistently raised tuition whenever student loan availability amounts have increased.

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