Tuesday, September 7, 2010

Back to School By Joe Siano


Libertarians remain unpopular because we are always dumping on someone’s favorite government program such as the universally popular home mortgage deduction.

I must admit that I, too, am as happy as a kid on Christmas when my accountant shows me how much tax money I saved by writing off my interest.  Nonetheless, I understand that my mortgage payments would be lower if both the price of my home and my interest rate were not government subsidized and thus allowed to find their real market level.  The deduction is just a shell game that disguises cost and lets you think that government is on your side.

But this is not about mortgages.  This is about federal student loans.

Another popular program.  Who could be against that? Well…..

The first objection that I’d raise is, “by what Constitutional authority is the federal government in the student loan business at all”?

The Feds first got into the student loan business in the late ‘50s and found Constitutional cover within the realm of national defense.  The original National Defense Education Act (NDEA) was a reaction to the Sputnik scare.  The nation wanted to ensure that we had plenty of young scientists and engineers to combat the apparent technical advantage that the Soviets were holding in weaponry.

In the interest of full disclosure I must confess that I am also a beneficiary of this program.  But frankly, I am at a loss to see how my degree in Advertising and subsequent career selling lipstick, candy bars, beer and whatnot helped to stave off the Red Menace.  Perhaps it was by stoking the engines of capitalism, which can never be a bad thing.

However, the new student loan provision within the Obamacare act makes no pretense of Constitutional legitimacy.  This new law seeks to make higher education a “right” just as we recently tried to make home ownership a “right”.  And it will have the same disastrous effects.

Firstly, even before the new law, federal subsidies for higher education fueled an inflationary trend in higher education that few, if any industries, could match, except of course, housing prices, which was also the by product of government intervention.

Secondly, up to 20% of current student loans are in default.  That means that we taxpayers will foot the bill for deadbeats once again.

Thirdly, with an economy stuck in neutral and possibly heading for another dip, we can reasonably anticipate increased default on loans totaling over $85 billion annually (as of 2008).

Finally, with the government seeking to make college education a “right”, we can also expect them to make more loans to unqualified borrowers, just as they did with housing.

It’s time to get government out of education financing.  Without subsidy, the price of a college education will fall to its natural market level.  Additionally, private lenders will make student loans based upon sound business principles, not a political agenda.

Most importantly, taxpayers will be protected from adding even more debt to our listing ship of state.


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