3/17/15 College Costs

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This spring, about 13 million high school seniors will receive college acceptance letters. By the time they leave college they will have the highest-ever college loan debt. Last year’s grads owed, on average, nearly $30,000.

College debt has doubled in the past six years.  1.3 trillion dollars bigger than credit card and car loan balances.  [Producer’s note: Mark said “$1.3 billion” but he should have said “$1.3 trillion.”]

There are many reasons for this. Here are two.

First, most of today’s colleges are crazy expensive. There are no incentives to keep costs in check. Colleges raise and spend as much money as possible. Often, money isn’t spent wisely: light instructor loads, fringe classes, and high-salaried administrators.

Second, the virtual government monopoly on student loans encourages the assumption of reckless debt. Because students get loans for even the most worthless fields of study.

A free market approach to loans could help slow-down costs and encourage students to make sensible choices. Lenders could offer low interest rates to encourage students who choose a field of study in which immediate post-graduation employment is near-certain. Such as nursing.  These students are low risk.  And are more likely to repay loans on time.

However, if a student wants a bachelor’s degree in puppetry the risk of loan default or delinquency is considerably higher.  A steep interest rate might dissuade these students from majoring in marionettes. In turn, forcing colleges to drop silly courses and ridiculous fields of study.  Thereby cutting costs.

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