How To Stop Rising Tuition Prices
Get Government Out Of It
Student debt has been a rising concern for Americans across the country, and rightfully so. In 2020, 45 million borrowers have a combined $1.64 trillion in student loan debt.
Many politicians and democratic candidates have provided broad solutions to the problem. For example, Senator Bernie Sanders released his plan for eliminating student debt and making every public college in America tuition free.
The problem with Senator Sanders plan is the fundraising mechanism that he uses to fund eliminating the student debt and making public colleges tuition free.
Sanders uses a Financial Transaction Tax (FTT) to fund the policies mentioned above. The FTT is a tax on financial transactions. In this particular situation, Sanders wants to specifically have a 0.5% tax on stocks, 0.005% on derivatives, and 0.1% on bonds.
The problem with taxes mentioned above is its effects on financial markets and the actual revenue that would be accumulated from these taxes.
The effects would be widespread and even negatively impact several markets, most notably retirement savings and home mortgages. This is because a large share of money used in 401Ks and IRAs would be lost in taxation, affecting retirement savings dramatically. The housing market would also be affected due to yields on Mortgage-backed securities going up. Yields on MBS have a direct affect on mortgage rates, which means as yields on MBS rise due to the FTT, so would mortgage rates, meaning the taxes would pass onto homeowners.
The best way to solve the rising tuition costs is to get government out of it.
Throughout the late 20th century, under several presidents, government expanded its reach into higher education.
In 1958, The National Defense Education Act was passed and gave the government the ability to distribute higher education loans throughout the country.
Few years later, in 1965, The Higher Education Act is passed that provides more education subsidies and student loans. It was part of LBJ’s Great Society.
Other major bills would be passed that guarantee federal funded student loans to any student who wants them. This came in 1993, when The Student Loan Reform Act was passed and included the government directly lending to students, instead of private institutions managing the loans.
Later changes would make it even easier for students to get access to federal student loans.
So what is the problem? Why is the government lending to students no matter their credit history a problem?
The problem is that the government guaranteeing student loans means that everyone has access to go to college. What this means, is that it eliminates the price competition between colleges to attract more students. Instead, it incentivizes colleges to increase tuition prices because everyone has the money to pay for it no matter the price.
What happens then is that students borrow more money and bury themselves in debt with overvalued degrees that are pushed by colleges.
When price competition is eliminated, colleges seek to invest in other areas to attract more students, these new investments tend to hurt students more because they are not worth the huge debt they get themselves into later on.
If the federal government were to stop guaranteeing student loans, then tuition prices would drop considerably. This is because there would price competition between colleges and universities to attract more students. Cutting costs and prices would benefit colleges because it would attract more students to their schools due to to reduced prices that students are looking for because of the lack of guaranteed student loans. Degrees would not be overvalued and students would not graduate with massive debt.
Thank You For Reading.
