Wednesday, December 3, 2008

Cost of college

In a surprise to nobody, the explosion of cheap private credit has made college ridiculously expensive and unaffordable for many people. I'm sure we'll have lots of opinions from pundits and politicians on how we can help people mortgage their futures to send their kids to college, but I have a novel solution to the problem:

How about we stop giving out cheap loans to everyone and subsidizing the risk with public debt? "How does that help" you ask? Well, I'll explain.

See, lots of cheap money means everybody can borrow for things they consider important investments. Many people think college education fits in that category, so there has undoubtedly been lots of borrowing (mortgages, etc.) to finance college. That, in turn, drives up college prices, due to simple supply and demand.

If we reduced the flow of cheap borrowing, there would be less money competing for college spots, so prices would go down. It would also have the added bonus of reducing prices for all the other essential assets (making everything thought of as "essential" more affordable for everyone), as well as reducing systemic risk in the financial system. And, as if that wasn't enough, as an added bonus it would save the country money, instead of inflating the national debt by trillions trying to pay off the people who caused the housing crisis as a great big "thank you" present for causing the current state of the economy! Basically, a solid win on all counts.

No surprise, then, that the talking heads are all talking about doing the exact opposite, "worst reaction possible" sort of plan. It might be funny, in a way, if it wasn't my future livelihood being destroyed by idiocy.

1 comment:

  1. If increased demand (due to subsidized financing) is driving up the cost of education, more suppliers will come in and the price will fall to some equilibrium price. If we are correctly valuing the quality of education supplied, i.e. not creating and paying for diploma mills, this is a good thing for society. Long-term GDP growth depends on having an education population. More quantity of education produced is a good thing.

    I agree we should be judicious about encouraging any debt. Excessive debt got us into this mess, and IMHO debt is not the way to get us out. I’m just saying subsidizing education, in the form of debt or cash, can be a good thing.