Tuesday, March 30, 2010

Uncle Sugar is in the Student Loan Business ... All by His Lonesome

Today, President Obama signed into law a new plan that eliminates private loans for post-secondary education (college and such).

Here is a not-so-middle-of-the-road excerpt from the New York Times:

The bill includes some landmark changes, like automatic increases, tied to inflation, in the maximum Pell grant award. But for individual students, the increase in the maximum Pell grant — to $5,900 in 2019-20 from $5,550 for the 2010-11 school year — is minuscule, compared with the steep, inexorable rise in tuition for public and private colleges alike.

Aside from the incorrect useage of the word inexorable (more on this in a sec), which means unrelenting or merciless, this bill (as the NYT nicely summarizes) will have automatic increases tied to inflation.

So, let me get this straight. Colleges will have NO incentive to lower tuition because people will always be able to borrow enough money to cover the cost? Wow, sweet deal for universities. Bad deal for kids who can now 'afford' to go to college and graduate with even more debt!

Back to the 'inexorable' rise in tution ... the authors take a bit of editorial license in assuming that there is no way to prevent the cost of tuition from rising. Of course, when you have a market that is distorted (like that of college education), prices will rise as the market incentives push it that way. But, to say that there is no way to fix it or label it as 'without mercy' personifies it in a way and excuses the authors from providing any argument about why the bill is not the best of different alternatives.

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