Thursday, December 01, 2011

Student Loans Drive College Costs, Driving Student Loans

James Banks raises the question Can the Humanities Be Saved? He recommends some interesting ideas at the end -- one I had not thought of is price differentials among majors (put a little supply and demand at work). But I would like to look at how he starts off his piece, with “formal statement” issued by the Modern Language Association (MLA):

Public attention has been directed recently to the educational debt students accumulate in the course of undergraduate, as well as graduate, study. A major contributing factor has been the increasing portion of educational costs students must bear in the form of loans. To reduce debt burdens in the future, we call on Congress, state legislatures, and institutions of higher education to calibrate educational costs and student aid in ways that will keep student debt within strict limits. We also call on them to hold in check tuition increases, which often far outpace inflation, and to ensure that degree programs allow for timely completion.
I suppose one should not be surprised that the MLA is ignorant of economics and, thus, they don't understand the real problem is with the loans themselves. The loans make university education artificially cheap -- with artificially low interest rates and delay of payments for people who have short time horizons, due to their age. This drives up prices in the same way similar programs drove up housing prices during the housing bubble. Further, almost all of the increase in costs go to bureaucracy -- much of which is needed to deal with the government, including the loans, etc. Does the MLA really believe that the price reductions won't be sent their way first, rather than to the bureaucracies? In other words, those at the MLA need to learn a little cause-and-effect. Sure, I know that goes against their pomo proclivities, but it's time they grew up and rejoined the real world anyway.

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