What about those federal loans for college students?

I enjoy reading Imprimis, a small monthly publication from Hillsdale College. The price is right (it's free), plus it has interesting articles. One that especially got my attention because I teach at a local college had to do with federal student aid and its unintended consequences.

The author made a bold statement at the beginning. He claimed federal student financial assistance programs are "costly, inefficient, byzantine, and fail to serve their desired objectives. "

He takes on opponents who argue that these programs allow more young people a higher education, which, in turn, has positive spillover effects for the country. He says these effects are very difficult to measure. In fact, there may be more negative spillover effects. For example, he focuses on spending by state governments on higher education compared with their rate of economic growth. The relationship between education spending and economic growth is negative or, at best, non-existent.

A second argument given for these programs says that higher education promotes equal economic opportunity, a way to achieve the American dream. But he notes that over the last four decades, a period in which the proportion of adults with four-year college degrees tripled, income equality has declined. So, higher education today does not promote income equality.

But there is a third argument for these loans – private markets for loans to college students are defective, so students need federal loan programs. He believes that if financial institutions can lend to college students on credit cards and make car loans to college students in large numbers (and they do these things), there's no reason why they couldn't also make student educational loans.

There is much more to the article, but I will stop here to allow people to digest this information first. More to follow in the next blog. In the meantime, consider subscribing to Imprimis. Just go to hillsdale.edu.