Student Loan Subsidies Hurt Taxpayers

Jeff Siegel

Posted July 2, 2013

Recessions, depressions, boom times, and busts.

Regardless of the overall state of the economy, you can always count on three businesses to survive and thrive: alcohol, gambling, and education.Freedom Watch

This makes sense…

If you’re out of work, alcohol helps the pain go away.

A $1 Mega Millions ticket is the poor man’s “big chance” illusion of economic freedom.

And when there’s no work for young people, college is a safe haven that allows twenty-somethings to insulate themselves from reality for at least four to six years.

Don’t get me wrong; I’m not knocking college. And quite frankly, if we have any hope of remaining competitive in a global market, we need to start churning out more engineers, doctors, and scientists immediately. You need a college education for that.

But as the nation got up in arms this week over the increase in interest rates for federally subsidized loans, the reaction from Washington was, not surprisingly, predictably useless.

Both sides of the aisle played the blame game while trying to save face with young voters, but few bothered to take on the important question…

Why is the government even involved with this?

College is NOT a Right

There are three main arguments for continuing a federally-subsidized college loan program.

The first is that these loans enable students to afford the high cost of a college education.

But the truth is a college education wouldn’t be so expensive if the government just stayed out of it.

Colleges and universities can charge outrageous fees because they know that students can get cheap money, thanks to the government. Take the government out of that equation, and all of the sudden these institutions of higher learning have to adjust to a more competitive environment — one where fancy gymnasiums and high-end dorms with movie theaters would have to take a backseat to reductions in tuition.

The second argument is that college is a right, and that these loans allow all young people the opportunity to go to college.

Of course college is not a right. But the opportunity does exist, with or without government subsidized loans.

And the third argument is that the government actually makes money from these student loans.

The devil is in the details with this one: The Congressional Budget Office (CBO) claims that from 2013 to 2020, government-backed Stafford loans will result in about $160 billion in profits. But as Kathryn Buschman Vasel from Fox Business News pointed out, some analysts disagree with the accounting on this, noting that it considerably underestimates the potential of students defaulting or taking advantage of options, like tying their payments to their income.

Bottom line: This is not reassuring for taxpayers who are already on the hook for dozens of other failed government programs.

Get a Job!

Of course, if I were getting ready to graduate from high school today, I’d bypass college altogether and learn a trade — something that would enable me to posses a valuable, tangible skill.

As I wrote earlier this week, Web designers, lawyers, and cocky MBAs are a dime a dozen. But do you realize how hard it is to find a good electrician, plumber, welder or HVAC technician? And let me tell you something: You can earn some serious cash in some of these fields, too.

While there are plenty of college graduates moving back in with their parents, I know a 25-year-old electrician who, just three years after his apprenticeship, is now pulling in about $65,000 a year — not including overtime. He tells me he can make an extra $15,000 to $20,000 a year with added overtime.

An acquaintance of mine who I see at the gym every so often installs air conditioning systems in commercial buildings and warehouses. He’s been doing this for 12 years now. It’s hard work, but even after the real estate market took a nosedive, he was still pulling in more than $60,000 a year at the lowest point. Last year, he pocketed $83,000, thanks mostly to an increase in new construction work here in Baltimore.

Point is instead of trying to help all high school graduates get cheaper interest rates for college loans, perhaps we should incentivize some young people (not subsidize them) to seek a vocational career. The work is virtually guaranteed and the cost of training is minimal compared to what most colleges charge today for a piece of paper.

I’m not saying it’s the perfect match for all students… but quite frankly, there are just too many kids running off to school with no idea what they want to do, racking up huge amounts of debt and being released into the workforce with few valuable skills and little hope of finding a well-paying job.

It just doesn’t seem to make sense that the government should be supporting and helping to facilitate this trend.

Live honorably, live free…

Jeff Siegel Signature 

Jeff Siegel for Freedom Watch

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