Today in “You’re not helping”: student loans. I was discussing this recently with Brandon, who argued that student loans aren’t the reason why higher education is so expensive. I disagreed, noting that when people (in this case, schools) get to charge a sum of money and people no doubt go into debt for it, schools have no reason to lower costs. The lenders, now the government, has no incentive to lower costs, either. The more defaults, the more interest paid and the more money they get. Student loans, like taxes, are non-bankruptable, too. They’re with you until you die, and in most cases even beyond. Without incentive, there is no meaningful way to change.
So, schools charge money, students pay with loans that are guaranteed which means schools are also guaranteed the money. See a pattern here? If you can charge whatever you want and know that the money is guaranteed from the government, why would you ever want to lower costs? Just to be nice? Hardly.
The only way to stop it is to “starve the beast”, at this point. Stop taking out loans and pay for school as you go. As students will no doubt struggle early-on, the school won’t have money flowing in the front door anymore. This would force schools to either scale back and downsize or drown in their own debt. Eventually, they’ll be forced into lowering costs in order to maintain their precious enrollment numbers. And the only way to achieve that is to get parents to invest in ESAs early and get students to make responsible decisions in the degrees they pursue, if any.
In 10 years, we’ll be flooded with Bachelor-degree wielding graduates. The market won’t bear the costs and will self-adjusting, turning a B.A. or B.S. into a current-day high school diploma. This will force more people back into schools for Master’s degrees and doctoral degrees, which results in … more money for schools and more debt for everyone else!
I hope Bill Gates is right — that in 10 years, you’ll be able to learn anything and watch lectures online for free. Apple’s leading the way with iTunes U. It’ll be up to the market to force down the costs of learning, because schools won’t be taking to the time to reduce the cost of instruction.
As an aside, you can easily substitute “healthcare” for “student loans” and “schools” for “hospitals” in this post now, too.