Federal student loans ‘fuel academic arms race’

Jan 5, 2014 by

As combined student loan debts balloon to over $1 trillion, one economist believes enough is enough — the “tremendously explosive” student loan programs offered by the federal government need to go.

Ohio University economist and chair of Center for College Affordability and Productive Richard Vedder recommends that President Barack Obama and Congress work together to dismantle or greatly shrink the student loan programs that let young Americans rack up debt.

“I would go so far as to say that I think the federal government is more the problem rather than the solution,” Vedder told the Carolina Journal Radio during a Friday interview. “A lot of our problems… come from these tremendously explosive student loan programs and grant programs that the federal government provides.” (RELATED: Federal student sharks prey on cancer patients filing for bankruptcy)

Giving 18-year-olds fresh from high school with no financial skills free reign to borrow hundreds of thousands of dollars may not be the best course forward, Vedder said. Colleges flush with easy money spend it on administrative pay and luxury fitness centers, increasing tuition all the while.

“The government is providing fuel for an academics arms race that is going on all over the country by allowing kids to borrow huge amounts of money at very, very low interest rates, and many of these students are really not knowledgeable about finance and so forth,” he continued. “They go out; they borrow a lot of money. The colleges raise their fees more than they otherwise would. This provides extra income for the colleges, which goes for a ton of different things — luxury facilities, more administrators, higher pay for people, and the like — and makes college less affordable.”

Vedder also criticized Obama’s recent tour of speeches focusing on higher education and his claims that the government must “make it easier for kids to pay back their loans.”

“Well, they don’t really need to pay them all back,” he said. “Maybe they just pay part of them back, 10 percent of their income for a few years. So, if anything, that encourages the students to borrow more, by the way.”

Encouraging every high school graduate regardless of interest or ability to take out massive loans and spend four years plugging away at their laptops writing double-spaced term papers has left millions of young Americans with debt bills and no prospects for employment, Vedder continued.

via Economist: Federal student loans ‘fuel academic arms race’ | The Daily Caller.

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