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Eliminate or Radically Restructure Federal Student Loans

Eliminate or Radically Restructure Federal Student Loans

The James G. Martin Center for Academic Renewal


Richard K. Vedder

Sept. 16, 2020

A recent defense of student loans by Jason Delisle of the American Enterprise Institute is, uncharacteristically for him, off-base. He defends the federal student loan program, which he correctly notes is criticized by those on the left (“college should be free”) as well as on the right (“student loan programs have raised the price of education”).

Delisle cites research showing that students borrowing aggressively tend to get better grades, graduate more successfully from college, and get better jobs, promoting not only their own well-being, but that of society.

While in a longer essay I probably would disagree somewhat as to the reliability of the research that Delisle cites, my much more important point is that Delisle does not see the forest for the trees.

Specifically, he ignores a fundamental problem that student loans have helped create: Too many people are getting overly expensive college degrees, while many others drop out before degree completion or end up underemployed, doing jobs historically done quite competently by high school graduates.

Do you really need a college degree to drive a taxi or be a bartender? Many doing those things today have degrees. Are taxi rides faster and safer, or drinks tastier because they are mixed by college graduates? I think not.

A student taking a solid course in the principles of economics by the third or fourth week, if not earlier, should be able to manipulate demand curves to discover that federal student loan programs serve to increase college attendance, one of their goals.

When federal student loans are readily available, the number of students wanting to go to college rises (demand for higher education increases), pushing up both price (college tuition fees) and attendance. If the demand increase induces a supply response, that would increase enrollments even more. The proportion of adult Americans with bachelor’s degrees has more than tripled since 1970, when federal student loan programs were in their infancy.


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