Diagnosis Of The Dysfunctions Of The Federal Student Loan Program

From Bloomberg, "End U.S. Student Loans, Don’t Make Them Cheaper" by Richard Vedder, director of the Center for College Affordability and Productivity and professor of economics at Ohio University.

The country is turning out far more college graduates than jobs exist in the areas traditionally reserved for them: the managerial, technical and professional occupations.

The Bureau of Labor Statistics tells us that we now have 115,000 janitors, 83,000 bartenders, 323,000 restaurant servers, and 80,000 heavy-duty truck drivers with bachelor’s degrees -- a number exceeding that of uniformed personnel in the U.S. Army.***we have millions of underqualified college students borrowing or getting Pell Grants to finance college.

More than 40 percent of them don’t even graduate within six years, and many who do have marginal academic records. Because the average college student spends fewer than 30 hours a week on all academic activities, for about 30 weeks a year, never have so many dollars gone to teach so many students for so little vocational gain.

Besides leading to more underemployed college students of increasingly dubious academic quality, the dysfunctional federal student financial assistance programs have other pathologies:

First, universities, unlike the taxpayers, suffer no financial consequences when the underqualified students they have lured into their academic programs ultimately default on their loans.

Second, students who study six years but ultimately drop out receive more financial aid than the diligent “A” student graduating in three years: We reward mediocrity and punish excellence.

Third, there is no adjustment of student-loan interest-rate terms to meet market conditions or differing risk factors relating to individual repayment prospects. That means too much money is lent, especially to high-risk individuals with little prospect for academic success.

Fourth, the Free Application for Federal Student Aid form, associated with these programs, aside from being unbearably complex, gives colleges private information about family finances that allows them to gouge students more.

Fifth, colleges’ tuition and fee policies drive the amount of loan volume, rather than the other way around, thus contributing to the college-cost explosion and the subsequent academic arms race.

Sixth, intended partly to promote greater opportunities for the poor, these federal-aid programs have been accompanied both by rising income inequality in the U.S., and a decline in the proportion of recent college graduates from poor families.