Schools Want the Sky to Be the Limit on Loans (Student debt bubble? What bubble? Say lobbyists)

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The student loan program has long been a mess. In 2009 the government cut out the middleman and made it even worse. (If you can believe it.)

Student loans are couched as aid to students. They really are streams of income from the federal government straight to the massive university system. The administrators, the full professors, the real estate developers, etc. etc. But the student is on the hook. The student is just the conduit for this cash.

Of course the universities want the college loan program to be as big as possible. It’s their bread and butter. They feast on the money students bring in. Young people and their parents want desperately to buy a ticket into the dwindling middle class. People believe there is no other option but to load up on debt.

Student debt is not about students and certainly not about helping them. It’s about classic federal government induced crony capitalism, simple. In truth we should just stop all student aid and see what happens to tuitions. My bet is they would deflate quickly. But that is what universities which have long gorged on this easy money fear.

Another important point. Lots of people fell for the student debt scam and they shouldn’t just be bailed out because they’ve gotten in over their heads. We all make mistakes. The answer is to cut student debt programs. Not forgive it. But even though this will go a long way toward solving the problem it won’t get politicians many votes or money from college lobbyists.

(From Bloomberg)

For the past nine years, graduate students in the U.S. have had almost a blank check to take out as much as $80,000 a year in government-backed loans to pay for tuition and living expenses. Republican Senator Lamar Alexander of Tennessee thinks that’s too much. He’s introduced legislation, backed by his Democratic colleagues Michael Bennet of Colorado and Cory Booker of New Jersey, to limit borrowing to $30,000 a year, with a cap of $150,000. Programs with especially high costs could appeal to the U.S. Department of Education to let their students borrow up to $15,000 more each year.

Colleges, whose lobbyists and trade associations have succeeded in defeating just about every attempt to control rising tuition costs over the last decade, are trying to soften Alexander’s proposed law, which would also radically simplify the federal student aid application. “I don’t think that bill will be enacted as is,” says Carolyn Henrich, a lobbyist working for the University of California system in Washington. Henrich, who formerly lobbied for the National Parent Teacher Association, says she’s met with Alexander’s staff to register the university’s opposition to the loan limits.

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