President Obama and Congressional Democrats have been quick to laud their takeover of the student loan business (in the healthcare overhaul bill, mind you) to bypass private lenders and go directly through the government. We are told by the administration that this will reduce the deficit and increase the amount of loans available to students, but in reality this move could cost taxpayers another huge bailout.
Over the past two decades, the cost of higher education is probably the only thing that has gone up faster than health care costs. Why? By encouraging everyone to go to college (and ostracizing those who don't), and by making it easier and easier to qualify for student loans, we are increasing demand and artificially inflating the cost of tuition. Meanwhile, college and universities NEVER shrink, as anyone who has visited their alma mater recently can atest, and they're more likely to cut student services (like music, film, and art series) than to cut staff, salaries, or pensions (a recent article by Victor David Hanson had me laughing in that the only professor he knew during his 20 years in academia to be terminated was let go only after he was arrested for decapitating another human being).
The good news has always been that banks tend not to loan money to those who can't pay it back. This used to be how it worked in housing until the federal government got involved. Enter political agendas and socioeconomic factors outweighing the ability of the individual to pay off their debt, not to mention government guarantees with no profit-driven incentive to be reimbursed, and you have the subprime mortgage crisis. Bad loans were handed out in record numbers, housing prices went sky high, and a bubble was created. When it popped, taxpayers were on the hook for record bailouts and Fannie Mae and Freddie Mac are still hemorrhaging money.
This is pretty much the same way the scheme works in student loans, which all have the backing of the federal government, only President Obama's legislation makes it easier to apply and qualify for these loans as well as forgive large portions of debt should the individual face financial "hardship" or choose to go into "public service" (where compensation and job security are already grossly outpacing the private sector). No doubt the government will also weigh certain socioeconomic factors over the ability of students to actually graduate and gain employment so they can pay off the debt. Tuition prices will skyrocket since affordability has been divorced from the marketplace, and when all of these student loans get defaulted on, the taxpayer will be on the hook to bail out higher education (which everyone knows is too big and too important to fail).
But the comparisons don't end there. Twenty years ago, President Bill Clinton made home ownership for every American a priority of the federal government, especially for lower income families. He promised it wouldn't cost the taxpayers a thing. In his own words from June 5, 1995:
"As the Vice President and I said in a book we put out in the election campaign in 1992, our economic strategy includes a commitment to work to provide decent, safe, affordable homes to all Americans... Our home ownership strategy will not cost the taxpayers one extra cent. It will not require legislation. It will not add more Federal programs or grow Federal bureaucracy. It's 100 specific actions that address the practical needs of people who are trying to build their own personal version of the American dream, to help moderate income families who pay high rents but haven't been able to save enough for a downpayment, to help lower income working families who are ready to assume the responsibilities of home ownership but held back by mortgage costs that are just out of reach, to help families who have historically been excluded from home ownership. Today, all across the country, I say to millions of young working couples who are just starting out: By the time your children are ready to start the first grade, we want you to be able to own your own home"
The speech received thunderous applause. Of course, by the time he was proven wrong and it cost the taxpayers everything, including the worst recession in 25 years, his words were long forgotten, even though his policies continued to dig a deep fiscal hole. Now listen to President Obama make the same promise about a college education in Austin last month:
"I want us to produce 8 million more college graduates by 2020, because America has to have the highest share of graduates compared to every other nation. And that’s why I'm absolutely committed to making sure that here in America, nobody is denied a college education, nobody is denied a chance to pursue their dreams, nobody is denied a chance to make the most of their lives just because they can’t afford it... As a result, instead of handing over $60 billion in subsidies to big banks and financial institutions over the next decade, we’re redirecting that money to you, to make college more affordable for nearly 8 million students and families across this country. Eight million students will get more help from financial aid because of these changes."
Sound familiar? As with all well-intended, economically unfeasible, redistributive policies of the left, the question isn't if this will create a bubble, but when will the bubble pop? You can be sure of one thing. President Obama will be well out of office by the time it does, and Democrats will singing their favorite note, trying to blame their economic failures on Republicans once again.