Students Are Responsible for the Student Loan Crisis (Part 3 of 3)

But There’s a Lot More to It Than That

This is the final part of a three-part series of articles on the student loan crisis. Part 1 provided an introduction to the subject, explored who is to blame, and offered an overview of the process of performing a cost-benefit analysis of college degrees, the jobs they lead to, and the financing of them that every person contemplating attending college should perform before even applying to a college. Part 2 examined other factors that contributed to the student loan crisis, where we stand now, and what student loans actually accomplished in opposition to what their original purpose was. This part will look at how government is contemplating fixing it and concluding remarks.

How government is contemplating fixing it.

Not being satisfied with this catastrophe, the same politicians that have been perfectly content burying students in debt now want to make college “free”. The free college solution that these politicians will implement is unlikely to be the free college that students envision. In order to examine what free college means, we need to look at the economic dynamic that governs the operation of all colleges internationally, free or otherwise. There are three metrics, or goals, that reflect the different strategies that can be taken in delivering college educations:

  • Provide a high level of tuition subsidy. (Ranges from unsubsidized to free tuition).
  • Provide a high level of degree attainment. (Percentage of the population that has a degree. This isn’t just access to college, but the ability to actually end up with a degree).
  • Provide a high level of student resources. (Includes class size, access to professors, counseling, availability of room & board, healthcare, and a wide range of other services & amenities).

“International Higher Education Rankings”, a report by the American Enterprise Institute, discusses these three metrics:

Christ Troupis Book

While the public purse bears a relatively low share of the costs in the American university system, the United States ranks ahead of most of the developed world on other goals, such as college degree attainment and resources available for higher education. Conversely, “free college” nations such as Finland more often than not rank behind other countries on these other metrics…

…A government that pays for a greater share of each student’s college education can afford to send fewer of those students to college, resulting in lower overall degree attainment. Similarly, without the ability to raise revenue through tuition, colleges may have fewer resources to spend on each student’s education…

…While policymakers frequently cite all these goals as desirable, in practice they are often in tension with one another. For instance, if the government pays a greater share of the cost of college, it can afford to send fewer students to college. If institutions are to have more resources, prices must rise. And if a university system enrolls more students to increase attainment, its existing resources are stretched thinner.

Because no nation has unlimited resources, no nation’s colleges excel in all three areas. It is a trade-off. Finland, for example, has one of the most liberal free college systems in the world – offering free college even to foreign students. But they have one of the lowest levels of degree attainment by their citizens. America has a low level of tuition subsidy, but among the highest levels of degree attainment and resources available to students.

A 2018 article in The Atlantic stated:

The U.S. ranks No. 1 in the world for spending on student-welfare services such as housing, meals, healthcare, and transportation, a category of spending that the OECD lumps together under “ancillary services.” All in all, American taxpayers and families spend about $3,370 on these services per student—more than three times the average for the developed world… One reason for this difference is that American college students are far more likely to live away from home. And living away from home is expensive. Experts say that campuses in Canada and Europe tend to have fewer dormitories and dining halls than campuses in the U.S.

Nations adjust the ratio of the three metrics to control costs by using a number of methods. For example, free college nations reduce the number of students accepted into their colleges by raising the admissions requirements. Free colleges in Europe have class sizes of up to 1,500 students, where students don’t know the person sitting next to them or even their professor. This more competitive and less social environment is used to drive up the drop-out rate – another way to control enrollment and reduce costs. Free college does not include housing and meals, and often not books or materials. It is not unusual for students attending free colleges in Europe to get loans to pay for these extras.

If the US goes to a free college system and the tuition costs currently paid by student loans are paid by the government, the inherent economic trade-off will require that the current high levels of degree attainment and resource availability will need to be reduced. Students will find that college will be a far different experience in terms of services, personalized teaching, class size, entrance exams, competitiveness, reduced on-campus housing, and reduced or eliminated sports activities. Fewer students will get to attend and more will find themselves dropping out. It is not clear that American students understand that these trade-offs will, in fact, occur with free tuition.

It is important to understand that the American system of colleges and universities did not come into existence through decree. It evolved into its current form in response to American’s interests and way of doing things. Whereas Europeans may be content to have an elite class of people with a higher level of education, Americans believe that all who desire it should be able to pursue it. We therefore want a high level of degree attainment in our country. Likewise, we believe it is valuable to foster experiences outside our local environment and to have personal interactions with our professors and fellow students. We therefore value providing a wide range of resources to students including on campus dormitories and small class sizes.

Free college sounds like it would provide these things, but it does not. It provides free tuition and minimizes degree attainment and the resources available to students. We should, therefore, think very carefully whether we want to adopt the European system of higher education with its trade-offs that are in direct opposition to American preferences, as the means to solve a student loan crisis that has other solutions that would preserve the American system of higher education.

While many things would change with free college, one thing will not change: the government will still hire private servicing companies to manage college tuition programs. In other words, college will be business as usual for politicians and their cronies in the industry. Government will continue to transfer billions of dollars a year from its citizens to its cronies – only in the form of tax dollars instead of loan dollars.

The ‘solution’ of free college will convert the accumulation of trillions of dollars of student loans to the accumulation of government debt. Instead of paying the cost of college with a student loan payment, students will find that they will be paying it with higher income taxes when they graduate. That payment has no end date. They will be trading a 5-year to 20-year loan payment for a lifetime tax payment. While they have total control over the size of their loan payment, they have virtually no control over the size of their tax payment.

Free college will create the illusion that the economic risk is gone, and that it is no longer necessary to perform due diligence when deciding whether to attend college. But in fact, the cost would merely be hidden and the need for due diligence would still exist. With the government continuing to fail to teach high school students how to perform cost-benefit analyses to determine whether to attend college, there will be no end to this loss of resources, time, and money.

If the students considering college do not gain the skills necessary to research the degrees and the financial viability of the jobs they lead to, free college will only aggravate the problem. We will encourage students to pursue degrees based upon any whim or ideology that moves them – whims untempered by practical reality. Just as we have now, we will continue to have large numbers of students landing in careers that do not lead to self-sufficiency, do not contribute to society, and do not allow the implementation of a meaningful and rewarding lifestyle.


Government meddling in the free market of education produced no increase in the percentage of the population that attended college. It was, however, very successful in transferring trillions of dollars ($2.8T) of taxpayer money to private lenders and service providers and to colleges and universities – entities that heavily lobbied politicians to get this money. The program was so poorly designed and implemented from the standpoint of student benefit that it cannot be clear if the original impetus behind it was well-intentioned or a disguised plan to funnel taxpayer money to preferred entities from the start. The entire student loan program was premised on a single, one-dimensional, half-baked idea: that the wholesale marketing of student loans to all students, without attention to the ability of the student to repay the loan, would lead to equality of outcome for those who couldn’t afford college.

This mindlessly simplistic idea did not even acknowledge its own inherent caveat: that for the program to be considered successful, the financially disadvantaged students would have to be converted into financially successful graduates. Financially successful graduates would not find it necessary to default on their loans. The high loan default rate right out of the box was an unequivocal metric of the program’s failure that was dutifully ignored by all. Any member of Congress that had any compassion for the students, let alone any semblance of intelligence, would have stopped the program immediately for reevaluation of the fundamentals upon which the program was based. The absence of any meaningful oversight or intervention over the course of nearly 50 years refutes any claim of Congress to be representatives of the People with their best interest in mind.

The student loan program had no go/no-go criteria attached to it so when it became clear that the money was being spent on a program that was not accomplishing its goal there was no mechanism requiring a reevaluation of the loan-granting criteria or of the goal itself. The Federal student loan program not only fails to convert financially disadvantaged students into financially successful graduates, it succeeds in converting financially solvent students into financially crippled debtors – by the millions! The government essentially teaches students to practice its own fiscally irresponsible behaviors with the inevitable disastrous consequences.

After pumping ungodly amounts of money into college loans and grants, it should have become clear at some point that a lack of access to money for college was not the reason that college enrollment was remaining steady at 6.5% of the population. It is beyond the scope of this article to derive the economic fundamentals that are responsible for this percentage, but after 44 years of experience, even someone just riding by on a mule can see that throwing more money at this program as a means of reversing the crisis it created would be mindless stupidity.

On top of this, offering free college as a solution would only perpetrate students ending up with degrees that contribute nothing towards improving their lives because it would give the impression that there would then be no risks associated with choosing a degree.

These are the key facts that are relevant to assessing what should be done about the student loan crisis:

  • College aged students are wholly unversed in performing cost-benefit analyses of college degrees and the jobs they lead to.
  • There is currently a 37% excess of four-year college graduates produced who see no economic benefit from the degree received over those with only a high school education, and an additional 11% who see no economic benefit from the degree received over those with only an Associate’s degree.
  • Student loans do absolutely nothing to increase the percent of the population that attends college: a steady 6.5% of the population enrolled in college over the same 44-year period that student loans increased over 2,000% – after inflation.
  • Instead of increasing enrollment, flooding the market with student loans only causes an increasing number of those 6.5% to graduate deep in debt and incentivizes further spiraling cost increases.
  • There are, in fact, people who cannot attend college due to economic constraints. But providing the money for them to attend college on the front end only to bury them in student debt with low-paying jobs on the back end does not convert them into financially solvent graduates with a bright future – it worsens their situation.

The single most important step to take towards reducing and eliminating the student loan crisis is to teach students how to perform cost-benefit analyses of college degrees, the jobs they lead to, and the means of financing them. In this way, even if the current corrupt system of student loans remains in place, students will be able to avoid its pitfalls and only use it in ways that will benefit them. Because the wise choice of degrees pursued will greatly reduce demand for economically unproductive degrees, colleges will be forced to eliminate these degrees and to cut college costs to meet the demands of their newly savvy customers. Employers that offer jobs requiring a degree will be forced to pay salaries that can support the cost of the degree or face critical shortages of applicants, whereas the current system artificially supports employers that underpay degree-holding employees. The importance of a rigorous and methodical approach to the career selection process cannot be overstated and our high school students must be well educated on these methods.

The second most important step in solving this crisis is promoting the understanding that a four-year college degree is as often a road to disaster as it is a road to success. For half of today’s four-year college students, a two-year community college degree or a trade school certificate would lead to greater success. An article in the Independent Voter News states:

Students should select a path of study that has low unemployment rates and high earnings. Frequently this means a trade certificate rather than a traditional four-year degree, as many trade jobs are experiencing massive labor shortages, which are driving up wages.

Obviously, the current system of student loans should not be left in place. Government student loans have proven to be a corrupt disaster that have not only relegated the poor to remain in poverty but have pulled financially solvent students into poverty. The government must be eliminated from college financing. Private financial institutions making student loans must receive no guarantees, tax breaks, or other compensation for making loans or for those loans that default. This will realign the best interests of the financial institutions with the best interests of the students because whether financial institutions sink, or swim, should be determined solely by the level of success of the students they serve. This would reduce the number of students that attend college and would in turn reduce that half of college graduates that end up in jobs that do not require a degree. Lower enrollments would also force colleges and universities to reduce costs.

Neither should government or the education industry, including colleges and universities, be involved in solving the debt crisis of the millions of students upside down with student loans because of the conflict of interest created by the fact that these entities are the very cause and beneficiary of the problem. A commission of private non-profit organizations involved in student loan debt counseling would be the most likely source of equitable solutions to this problem.

The idea of an equitable solution refers to non-taxpayer funded solutions for multiple reasons. First, millions of taxpayers have themselves been in student debt and have gone through the arduous process of paying their debt off. For them to then be burdened with paying someone else’s student loans off through higher income taxes would be patently unfair. Neither would it be fair to the vast majority of taxpayers, who themselves never went to college, to be burdened with paying off the student loan debt of others who freely made the decision to go to college and only failed to receive benefit from that decision through their own inept choices of the degree to pursue and how to finance it.

Nonetheless, it is likely that some degree of taxpayer assistance may ultimately be necessary, but we should be far more willing to trust a private non-profit commission to determine this, than the government that created the problem in the first place by unnecessarily spending trillions of dollars of taxpayer’s hard earned money.

The original problem that government involvement in student loans was supposed to solve, namely helping the underprivileged, remains largely untouched because instead of having been lifted out of poverty by a college education, half of those who took advantage of student loans are worse off for having done it.

From this it becomes clear that the correct strategy for addressing people with economic constraints is to base college admittance strictly on performance on entrance exams. The top 6.5% should be admitted regardless of ability to pay. For those individuals that are financially disadvantaged, loans are not the solution – scholarships and grants are – but only if the proposed degree and the job it leads to is commensurate with the cost of the degree. This would ensure that the grant programs contribute to providing the poor with the tools to lift themselves out of poverty, rather than burying them in debt and guaranteeing they remain in poverty. It would also ensure that grant money was spent in ways that contributed to the good of society and not squandered on economically unproductive degrees. If someone wants an economically unproductive degree, they can pay for it themselves.

Climbing out of the hole dug by government is going to be a long and painful process, but it can only be achieved if we first stop burying more students in debt, educate our students on how to perform cost-benefit analyses on their career achievement plans, put the benefits of college degrees into a realistic perspective, eliminate government involvement in student loans, do not replace that system with one of government financed free college, and, finally, solve the original problem of providing a pathway to college for the underprivileged that actually addresses the problem rather than compounds it. It is a big problem to solve and one that the Federal government has proven itself beyond all doubt to be absolutely incompetent to manage. Perhaps this is why, to this day, that the Federal government is prohibited by the Constitution from involving itself in education.

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