One of the worse examples of government interference with education was the creation of the Sallie Mae program. Like all so many government programs, it was created with good intentions. But, also like so many (all?) government programs, it was fraught with unintended consequences.
The original version written in 1972 was to provide a means of low cost, government guaranteed, student loans. When I was in college in the late ’60s, my tuition was $195/quarter plus student fees of another $50. My wife and I attended Southern Illinois University at Carbondale, SIU. SIU was on the quarter basis at that time instead semester, Fall, Winter, Spring and Summer quarters. My room and board was $100/mth at a Christian dorm.
Few students at that time did not work while attending classes. SIU had a student work program paying a starting wage of $0.75/hour. Many students, my wife and I included after we were married in 1968, attended school full-time and worked 40 hours a week as well.
My wife and I also had small scholarships that reduced our tuition costs. Others without scholarships got student loans—commercial loans through their local bank or other financial institution. Education costs were low and affordable.
Until the FedGov got involved.
Sallie Mae eliminated the risk from student loans. One of the unintended consequences of Sallie Mae was the eliminating the need for students to self-finance their education. Another unintended consequence was that market forces no longer regulated tuition costs.
With a reduction of risk, commercial loan providers expanded their programs. Colleges, realizing that the market constraints from the commercial loan providers were gone, began to raise tuition. The result has been a steady increase of tuition of 7.5% per year!
The chart above illustrates graphically the “higher education bubble” by comparing the annual increases in the CPI for “College tuition and fees” (7.45% per year since 1978) to annual increases in the CPI for “medical care” (5.8% per year since 1978) to annual increases in the median price for new homes (4.3% per year) to the annual increases in the “CPI for all items” (3.8% per year).
In 2010, the Obama administration, through Sallie Mae, took over all student loans. Whatever market forces that still existed through commercial loan providers, were removed. Any constraint on colleges and universities to control costs also disappeared. Sallie Mae would rubber stamp student loan applications and the colleges could raise costs in a continuing loop.
Until it came time to pay the piper.
Dave Ramsey has a radio program playing on a local station every morning. As I sit here writing my daily blog post, I listen to the people on his show narrating their circumstances. People call in to his show reciting their woes and debt, debt often reaching six figures. More often the largest segment of this massive debt is student loans.
I sit here listening to people who have spent well in excess of $100,000 for a Bachelors degree in what? Social work…art history…counseling…a variety of professions that pay…$30K – $$50K per year. The costs to repay these loans push all too many into bankruptcy—except student loans from Sallie Mae can’t be removed via bankruptcy. Only death will excuse a student loan.
It’d be one thing to run up such massive debt if you would be entering a profession that paid well. But social work!? Counseling!?
Sallie Mae has become just another federal welfare scam. People are being taught that a degree is the path to the good life. Then, once they have that degree, reality wnrwea and they discover there is no market for counselors, social workers, art historians, and in many areas, teachers.
The job markets in many fields, including education, is over saturated. That leaves those recent graduates with…flipping burgers. It’s no wonder, now, that the libs are preaching that the minimum wage, which was sold as a “training” wage, must be raised to be a living wage. The problem with the liberal logic is that raising the minimum wage means fewer can be employed.
What Sallie Mae has done has been to pollute the educational process—raising the cost of education, increasing personal debt, and diluting the value of higher education. Indirectly, Sallie Mae has fed the increase of unemployment through that devaluation of education.
What should be done to restore value to education and reduce costs? A good start would be the elimination of the Department of Education. Barring that, disband Sallie Mae and return the student loan program back to commercial institutions and let them, again, make loans on a risk basis—no federal guarantees.
With the return of student loans to the market, market forces will once again be in affect for colleges and universities. When attendance drops due to excessive tuition costs, those colleges and universities will be forced to reduce tuition—or cease to exist.
With a return of reality, education will be value given for value received. If you can’t afford the tuition, there are alternatives available to meet education cost—including work. Yes, it may be a return to the ’60s—affordable tuition, market driven education, a return of working while attending classes, maybe, wonder of wonders, a return of conservative educators and an end of the failed socialist infestation that led us to this mess.