by Ct Yankee

Created on: July 28, 2010

Should the federal government bail out student loan holders?

 Without a moment's hesitation, the answer is: No! The lenders pressured the Federal Government to remove barriers, restrictions and common sense, creating the opportunity for easy student loans. For decades the established guidelines made money too easily available for too many soft degrees. If more students had pursued degrees in Engineering instead of Business Administration, we might not be in the trouble we're in. "For the love of money is the root of all evil."

 The problem is one of simple market forces allowed to run amok. Colleges and Universities "sell" a desirable commodity, the Degree. While many today may call it a useless piece of paper we assign it a definite value for purposes of this essay. The degree has a price-tag as set by market forces which includes the supply of raw materials; "students" and the processing capacity of the system; teachers, books, housing, classrooms, and the time needed to push a student through the system.

 The schools have two goals. 1) Maintain their brand. 2) Maximize profits. Let's not kid ourselves, schools require vast amounts of money to operate. Tuitions are set competitively in response to the value of the brand and the the resulting supply and demand curves. This practice worked well through the 1960's and was even able to handle the challenge of providing a generation of soldiers with GI-bill educations. Proof that the free market builds solid foundations.

 In the 1970's the US Department of Education started to interfere with the market system that had served our nation quite well. Student loans were made more universally available. This had the expected effect of stimulating inflation on the price of a college degree. The market responded predictably and chased rising prices with increased demand. Early on the resulting inflation could be offset with the more available Federal Student Loans, and a justification that the degree was still a valuable commodity for the graduate; it had not yet been inflated to worthlessness.

 In the 1980's Federal credit was tightened, grants dried up, and a new privatized student loan industry was created to supply the now barely affordable tuitions the previous decade had created through inflation. In order to calm the jitters of the investing community and to loosen the reigns on capital, the private lenders pushed for and were given certain guarantees under law. They were guaranteed minimum

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