- - Monday, July 29, 2013


The House votes this week on a student-loan bill that cleared the Senate last week by a vote of 81 to 18. There’s an air of urgency because higher student-loan rates are bad politics for politicians. Most of the “no” votes were from Democrats who want higher subsidies for student loans. But far from making loans less expensive, federal interference in the student-loan market drives up costs for everyone.

The interest rate on new Stafford loans jumped to 6.8 percent at the beginning of the month, provoking urgent calls for Congress to “do something.” The Senate bill cuts the figure to 3.86 percent in the first year. Thereafter, the interest rate adjusts to the Treasury bill rate, plus 2 percent, and not to exceed 8.25 percent for undergraduates. This is a smaller subsidy than in the old system, but it’s enough to blight the futures of many students who take the “free” money.

The government’s cheap-loan policy encourages young people and their families to take on debt far beyond prudence. The free-flowing subsidy encourages educational institutions to charge an ever-higher price for a diploma that’s not always worth it. Adjusted for inflation, tuition costs at public institutions rose 42 percent over the decade ending in 2011, and 31 percent at private institutions, according to the Department of Education. The universities have no incentive to reduce costs when the federal government stands by to pick up the tab. There’s “free” money for everybody.

When the money’s there, the universities will always find a “need” for it. As tuition rises, students borrow more, and on graduation day, the young graduates are saddled with a debt the size of a mortgage. It’s an impediment to starting a family, buying a house or even a new car. The cut in the student-loan subsidy being considered by Congress might slow the vicious cycle of tuition increases and more borrowing, but as long as loans are inexpensive, students and their families will borrow more than they should.

The message that high school seniors hear like a drumbeat is that a four-year college degree (accompanied by a lifetime of debt) is the only way to a prosperous and happy future. Many recent graduates have learned the hard way that this isn’t always true. Many move back in with Mom and Dad when they can’t find a job.

There are alternatives. A study by Michigan’s Bureau of Labor Market Information and Strategic Initiatives documents job openings of up to 120 days in a number of important and well-paying trades. These positions don’t require a college diploma, but they do require significant apprenticeship or on-the-job training. Trades offer many a good living. The median hourly wage for an electrician in relatively low-cost Michigan, for example, is more than $27 an hour; a carpenter makes on average almost $20 an hour.

Despite the demonstrated need for attention to such skills, four-year colleges get all the attention; the trades do not have football teams, after all. Government must take its thumb off the scale and quit favoring college over trade schools. The mismatch of skills in today’s job market contributes to high unemployment. Ending government intervention in the higher-education market would not only make college more affordable, but balance the job market and reduce unemployment. That’s a bonus for everybody.

The Washington Times

Copyright © 2018 The Washington Times, LLC. Click here for reprint permission.

The Washington Times Comment Policy

The Washington Times is switching its third-party commenting system from Disqus to Spot.IM. You will need to either create an account with Spot.im or if you wish to use your Disqus account look under the Conversation for the link "Have a Disqus Account?". Please read our Comment Policy before commenting.


Click to Read More and View Comments

Click to Hide