by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Richard Vedder writes for the Martin Center about new research focusing on federal financial aid for college students.
For years I have railed against the dysfunctional federal student loan program. The availability of cheap federal student loans has enabled universities to increase tuition fees aggressively, helping fund an unproductive academic arms race that, among other things, has led to sizable administrative bloat on most campuses.
The proportion of recent college graduates from the lowest quartile of the income distribution is lower than it was in 1970, suggesting that student loans have not been a successful vehicle for providing college access to those from low-income backgrounds—a primary program goal.
Default rates on student loans are high because standard commercial lending standards are ignored. …
… The New York Federal Reserve Bank has led the way in researching the loan programs, and a new study details that things are actually far worse than stated above.
Here are a few additional problems:
- Thinking the federal government is going to forgive student loan debt, a majority of students are not reducing their loan balance—at all;
- A very small portion (7 percent) of borrowers have huge debts (over $100,000), but owe over one-third of the $1.5 trillion in student loan debt outstanding;
- College graduates in 2010 had repaid only 9 percent of their loan balances five years later;
- College loan debt rose twice as fast as tuition fees from 2008 to 2018; much student borrowing appears not to meet direct instructional costs;
- People living in high-income ZIP codes have accumulated far more debt than those living in lower-income areas, suggesting relatively affluent borrowers are disproportionate participants in the student loan program.
In prosperous, low-unemployment times, loan balances usually fall—they have fallen for other types of loans. However, balances for federal student loans have continued to grow, largely because borrowers have very little incentive to repay them.