This hearkens back to my OpEd “Higher Ed Needs to Go Back to the Basics”.
When government-guaranteed checks keep rolling in, there’s no incentive for colleges and universities to lower their prices. In fact, they do the opposite.
n Basic Economics, Thomas Sowell wrote that prices are what tie together the vast network of economic activity among people who are too vastly scattered to know each other. Prices are the regulators of the free market. An object’s value in the free market is not how much it costs to produce, but rather how much a consumer is willing to pay for it.
Loans are a crucial component of the free market because they allow consumers to borrow large sums of money they normally would not have access to, which are later paid back in installments with interest. If the borrower fails to pay back the loan, the lender can repossess the physical item the loan purchased, such as a house or car.
Student loans are different. Education is abstract; if they’re not paid back, then there is little recourse for the lender. There is no physical object that can be seized. Student loans did not exist in their present form until the federal government passed the Higher Education Act of 1965, which had taxpayers guaranteeing loans made by private lenders to students. While the program might have had good intentions, it has had unforeseen harmful consequences.
Read the whole thing!