Why The Cost Of College Won’t Stop Rising

Career College Central summary:

  • With the fracas in Washington over how to stop student loan interest rates from spiking, there’s more attention than ever on the student loan “bubble.”  To pinpoint reasonable solutions, try considering the college loan issue as a version of two already irksome public policy problems: the debt dynamics of the mortgage bubble and the third-party-payer problem of the health care system.
  • For example, colleges are investing in Sallie Mae, which makes loans to students and sells them as student-loan backed securities. In doing so, colleges profit from high interest rates on loans given to students who pay their high tuition—and they’re the ones setting the tuition. It’s roughly analogous to banks profiting from mortgage-backed securities while the risk is carried by the investors who bought them and the borrowers who handle the debt.
  • Just as ratings agencies and assessors let standards slide for mortgage loans, the accreditation agencies that govern college standards are allowing just about any institution or business to become eligible to sponsor student loans for attendees, driving the business of for-profit colleges with high student loan default rates.
  • There are many reasons why student loans have ballooned, but a major cause is massive increases in tuition cost, despite the fact that the advantages of a college degree have stagnated in recent decades. Just as with the health care system, another notable area of cost inflation, a big issue is the separation between the people paying for the service and the people consuming it.

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