A decrease in student loan interest rate is a bad idea

A decrease in student loan interest rate is a bad idea

The new Democrat Congress recently voted to reduce the interest on some subsidized student loans from 6.8 percent to 3.4 percent, but Richard Vedder, writing in National Review Online, says this is a bad idea because the federal student loan program itself is harmful and the Democrat bill does nothing to mitigate that.

A historical perspective is useful. The great growth in college participation in the United States occurred before federal financial aid was a reality. With the single, but important, exception of the GI Bill, there were no large federal student-aid programs before 1970.

In that year, total federal student assistance amounted to $1.6 billion. About $1,000 per student in 2007 dollars, this was less than one-fifth the commitment today, even adjusting for inflation and the higher cost of tuition. Yet the number of college students per 1,000 Americans aged 18 to 24 grew from 23 in 1900 to 324 in 1970.

The explosion in aid began in the 1990s. From 1990 to 2000, federal student assistance more than tripled, going from $19 billion to $63 billion, but the proportion of the population in the 18 to 24 age group going to college rose only modestly (from 506 to 545 in a thousand). Among some groups, including males, there was no growth at all over this period.

The explosion in aid has actually accompanied a slowdown in the growth in college participation. There is little evidence that the aid epidemic has increased the proportion of adult Americans who are college graduates.

When the government pays, prices go up

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Written by
Domenico Bettinelli
3 comments
  • I had student loans, and when I hear politicians clamoring to increase the availability of such I cringe.

    Why work for increasing student loans instead of controlling college costs? All easier access to students loans do is burden the new graduate with debt amount graduation.

  • It is curious that government loans for college are so acceptable, but government loans for primary and secondary education are, like vouchers, entirely off the table.  (And wouldn’t inflationary tendencies also apply to vouchers?)

    Could university life have gotten so crazy without the massive subsidies provided by government student loans?  Not only secular campuses but Catholic ones, too, have (like many of their students) used their greater financial independence to descend into libertine nihilism.

  • I attended a state university in the mid 1980s. My parents were poor and I was given a $175 student loan my first year. Everything else in my financial aid package was either work study, grants or a state scholarship.

    For my last year, I would have had to take out a $1,700 student loan, but was able to convert it to work study. Also, tuition went up for that four-year period $4 per credit hour. Not $4 per year. $4 for over a period of four years. And tuition was $50 per credit hour. My local community college has the cheapest tuition around and is still higher than that.

    The year after I left, things went crazy. They raised tuition 10 percent and tripled a lot of their fees. It’s been pretty much that way at this state university ever since, more or less.

    Maybe I’m an aberration, but it seems to me that the school loans are just much more plentiful and taken for grant now.

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