Government Intervention

The federal government began guaranteeing student loans provided by private lenders in 1965. This created a program was called the (FFEL) program, or the Federal Family Education Loan program. According to The New America Foundation, the first federal student loans were provided under the National Defense Education Act of 1958. These were direct loans capitalized with U.S. Treasury funds. In 1990, the government became more involved with funding education directly with the Federal Credit Reform Act which was signed by George H. W Bush. This involvement increased further with the market disruptions in 2008 when government bailed out struggling private student loan lenders. The government takeover culminated in 2010 when Obama eliminated the FFEL program and ceased subsidies to private lenders all together. All federal loans have been made under the Direct Loan program since July 1, 2010. These steps have only increased student loan debt because of the basic economic principles previously stated. It is baffling then to consider that the same failed solutions continue to be attempted to combat the growing problem.

In 2011 President Obama announced that he would be taking even more drastic steps to increase college affordability. In a White House Press Release, the Press Secretary, Arne Duncan, announced the Administrations new “Pay as You Earn” program. This is an expansion of the income based re-payment plan that would take effect in 2014 and allow 1.6 million Americans to cap their loan payments at 10 percent and forgive the balance of their debt after 20 years of payments. Also an estimated 6 million students and recent graduates will be able to consolidate their loans and reduce their interest rates. These programs represent a pure example of the “law of unintended consequences” in public policy. According to the Nellie Mae Corporation’s most recent National Student Loan Survey, average undergraduate student loan debt in 2002 was $18,900 up 74 percent since 1994. The average class of 2014 graduate with student loan debt has to pay back 33,000, according to an analysis of government data by Mark Kantrowitz, publisher at Edvisors. That is nearly double the amount borrowers had to pay 20 years ago. As the debt burden of college graduates rise faster than inflation, the question will be increasingly raised of whether the debt associated with a degree is worth it. The ease and affordability of student loans along with the evolution of a culture of debt and entitlement are pushing us into a dangerous corner as a society.

We are taught to believe that debt is necessary and an inevitable part of the social process. We are taught to expect free money and low interest rates associated with college tuition. We feel entitled to these things and when we overstretch our budget, we don’t think twice about defaulting on the low interest loans or waiting for government bail-outs.