Today, NPR (All Things Considered) reported on the recent passage of the College Cost Reduction and Access Act by Congress. Oh, if life were so easy. Another few hundred dollars in per-student Pell Grants, lower interest rates, and capped loan payments will transfer more wealth, but the bill is not — as advertised — the “largest single investment in college aid since the GI Bill.”
Two aspects of the bill — in need of a Hazlitt-style analysis — clearly display either a lack of economic knowledge or purposive obfuscation.
First: The bill places a cap on all subsidized loan payments so that students will never have monthly payments that exceed 15% of their post-college income. According to Sandy Baum of Skidmore College, “So, if you borrow so much money that you can’t reasonably make the payment out of your post-college earning, there is much better relief than before.”
If the post-college salary does not provide enough to make student loan payments, the student wasted scarce resources obtaining their degree; the economy does not require the level or type of education acquired. What goes unseen is that capping payments does not change this fact. The cap simply places the burden of waste on the backs of taxpayers instead of the student.
Second: The bill forgives loans for those who enter “public service” fields, such as firefighting and early childhood education. The unseen result will be more “public service” graduates chasing tax-funded jobs.
Just like the original GI Bill, none of this can be considered an investment. Another wealth transfer, but not an investment.
