You are here

The Limits of Higher-Education Spending as a Stimulus; Obama's Student-Loan Flim-Flam

South Korea got a higher percentage of its young people to go to college than the U.S. But it backfired. Although "great numbers of eager students graduate from college every year," "the predictable problem is that many of them can’t find work commensurate with their education. The government now wants to lower the number of students going to college." The Obama administration wants to increase the percentage of youngsters going to college in the U.S., based on the theory that this will somehow result in more skilled jobs, but Korea's experience shows that "the idea that supply creates its own demand with regard to education is mistaken. Joanne Jacobs says that in Korea, 40 percent of new college graduates can’t find jobs (even though Korea has had healthy economic growth recently, although less so than in the past when it had fewer college grads.  Korea's economy grows faster because its government is smaller than ours). Economist Peter Schiff, "who was among the first people to publicly predict the collapse of the housing bubble," criticizes Obama's new, costly student-loan repayment scheme here, saying it will result in increased college tuitions and "moral hazard." George Leef of the Pope Center for Higher Education Policy writes that "Obama's student loan gambit," just "like his politically motivated interventions in the housing market,"
is just going to prolong and deepen the problem — too many people going to college largely at the expense of others, then struggling to find jobs that pay enough to cover the debts. Many will never find such employment since the labor market doesn’t automatically create high-paying jobs just because more people have a “higher attainment” in formal education. Then the costs are passed along to taxpayers. Obama’s move might reap him some political benefit, but it will lead to more wasted resources.
At Minding the Campus, Andrew Gillen calls the Obama administration's new student loan repayment scheme unjust social engineering that will harm some borrowers. As Joanne Jacobs notes, "Obama’s Pay As You Earn plan limiting loan repayment encourages students to borrow more and colleges to charge more, writes a business analyst. Taxpayers will get the bill." A credit rating agency, Moody’s, is now warning student borrowers that college may not be worth the money for some majors. As Reason magazine notes, there is now a looming higher education bubble:
A growing chorus of economists and educators think that the higher education industry will be America’s next bubble. Easy credit, high tuition, and poor job prospects have resulted in growing delinquency and default rates on nearly $1 trillion worth of private and federally subsidized loans. Now the ratings agency Moody’s has weighed in with a chilling diagnosis: “Unless students limit their debt burdens, choose fields of study that are in demand, and successfully complete their degrees on time, they will find themselves in worse financial positions and unable to earn the projected income that justified taking out their loans in the first place.”
We wrote earlier about the higher-education bubble here. In the New York Post, John Podhoretz suggests that the administration's recent student-loan repayment scheme will fuel that higher-education bubble, and
enrich one of the sectors within the American economy most responsible for the profound financial pressure on the middle class -- higher education. The staggering inflation in the cost of higher education since the federal government got involved in lending money to Americans for college in 1965 beggars description. One federal study found that between 1982 and 2007, tuition costs rose 432 percent while family income rose only 147 percent.