by Arvin Vohra
If I asked a bank for a loan to buy a 100 million dollar skyscraper for my business, they would probably say no. It’s not because they think I’m a wicked person. They just think it’s unlikely that I’ll be able to pay back the loan.
However, if a D student wants to borrow 200k to study art history at a tenth rate college, the bank will say yes. Why? Because the bank doesn’t care if the student is likely to pay back the loan. If the student does not, the government steals from you to pay it back.
The result is that teenagers with zero work or business experience are able to take out massive loans for impractical goals. People who are considered too young to drink, too high risk to rent a car for a day, can take out a massive loan, leading to decades of debt.
Colleges love this, since it allows them to charge outrageous tuition. Banks love this because it allows them to make irresponsible loans with a guaranteed payback. But it hurts students who take on huge and needless debts, who have to pay champagne prices for beer, and tax victims who have to cover the defaulted loans.
Eliminating all federal loan subsidies will quickly solve this problem. If banks no longer can count on taxpayer bailouts on reckless loans, they won’t make those high risk loans. That means that most 18-year-olds won’t be able to take out massive loans. Colleges will either have to lower tuition…or go out of business. Eliminating all federal loan subsidies and federal financial aid means lower tuition and less debt.
Reposted from Facebook.