Friday, October 30, 2009

College, Housing, Whatever, The Government Is An Equal Opportunity Destructive Force


A Remarkable Comparison: Affordable Student Loans vs. Affordable Housing

Here is an email from Eugene Holloway, a Maryland Attorney, on the rising cost of college education.

Eugene writes:

When I attended law school at George Washington U in 1969, the tuition was $1,900 a semester. I worked my way through and had no debts when I began to practice law.

Later, student loans became the norm. The loans were subsidized, encouraging students to become indebted rather than build sweat equity in themselves. Student loans also took parents off the hook for saving to pay for their childrens’ education. The result was still more government dependency.

Screwing up the marketplace with subsidies, drove up the price of education, encouraged institutions to grow based on government support, and placed undue emphasis (economically) on higher and frequently useless education.

We should expect the higher education market to suffer a similar fate to the real estate market, where subsidies, encouraging people to buy what they could not afford (and did not need) led them to a result that, when compared to their investment in time and treasure, was uneconomical.

Eugene Holloway

I spoke briefly with Mr. Holloway on the phone. He is from the Austrian economist school, and spoke of the "education malinvestment".

Over time that is certainly what has happened. The cost of education has spiraled out of control with the cost of higher education far exceeding the payback unless one gets lucky in the jobs lotto process.

Many college graduates will be paying back student loans for 20 years or more. This is what happens when government tries to make things affordable. The same thing happened with affordable housing.

Fannie Mae Freddie Mac Mission

Has anyone even bothered to look up the Mission Statement of Fannie Mae?

We are a shareholder-owned company with a public mission. We exist to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market.

Fannie Mae Limits


Fannie Mae exists to expand affordable housing.

Fannie now offers loans as high as $938,250.

By what stretch of the imagination is that affordable? That such loans are deemed necessary is proof Fannie Mae has failed its core mission.

Fannie at least has a mission statement that one can understand. They failed, but the mission is clear. Compare an contrast to the Federal Student Aid program.


Program "Success"

One way to measure success is by dollars spent. By that measure the student loan program is a rousing success.


The document states the student loan portfolio is now up to a whopping $556 billion.

Is it any wonder with success like that, that cost of education is spiraling out of control?

Nowhere along the line are there any incentives by anyone (either the colleges or those administering the program) to reduce costs.

As long as government is willing to "help out" with student loans, universities and colleges will keep raising prices, and the total cost of an education will keep soaring until one day it blows sky high, just as happened with mortgages.

Note that the loans are guaranteed by the government. Also note that student loans are not discharged in bankruptcy. Those two facts are all you need to understand why the financial industry as a whole consistently champions the promise of postsecondary education and its value to American society. No one really gives a damn about the students. Worse yet, were funding cut off, there would be student outrage over it when stopping funding is exactly what is needed to bring costs down.

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