December 20, 2019 at 8:57 am

Vedder: Federal Student Loan Program Is Dysfunctional

Dr. Richard Vedder

Dr. Richard Vedder, Distinguished Professor Emeritus of Economics at Ohio University, wrote a column for the James G. Martin Center for Academic Renewal headlined “New Research Shows Federal Student Aid Is Worse than We Thought.”

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 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.