Graduating to service debt.
Click here to listen to the broadcast of You Tell Me on KTBB AM & FM, Friday, Apr. 22, 2011.
Hundreds of thousands of young men and women across the country are about to don cap and gown, listen to a platitude-laden commencement address and then traipse across the stage to be handed a college diploma. Hundreds of thousands of parents, grandparents, aunts, uncles and family friends will celebrate.
It was not always thus. Prior to World War II, only a small percentage of high school graduates attended college. But the G.I. Bill, passed in 1944, was catalytic. It took farm kids and working class kids and made them the first in their families to earn a college degree.
The G.I. Bill had a very specific and narrow focus. The law was aimed solely at returning servicemen. It sought to avoid the dislocations that would surely have resulted if millions of young men returning from war had all re-entered the economy at once. The G.I. Bill acted as a buffer while it created a new cohort of educated young men at a time in our history when the transition from an agricultural economy to an industrial economy was being completed.
The country got its money’s worth from the G.I. Bill. The World War II veterans that took advantage of it created an educated workforce that went on to build the most successful economy in world history.
But the success of the G.I. Bill was over-interpreted. It led to the Higher Education Act of 1965, part of Lyndon Johnson’s Great Society, and created federally subsidized student loans.
Just about any kid, regardless of his or her creditworthiness, can get a student loan. This, coupled with a near universal belief that every high school kid should aspire to college, has led to a demand-supply imbalance.
Put simply, nearly unlimited student loan availability has removed the price signals that would have otherwise kept prices for college in check. Thus the price for college is outpacing inflation by as much as five-to-one.
Today, two of three kids are graduating college laden with debt. Aggregate student loan debt exceeds $1 trillion and is now a greater debt overhang on the national economy than credit cards
Because college under this financing model comes to be seen as an extension of public education, neither students nor their parents are conducting any meaningful cost benefit analysis. Partially as a result of that college curricula have been filled with classes on things like ethnic diversity, environmentalism, gender studies, feminism and numerous other mostly left-leaning courses.
All tolerable perhaps except for the fact that the ability to hold forth on the role of feminism in post-modern Western society is not in high demand by employers just now.
And it’s this disconnect that now looms for the graduating class of 2011.
Such is what happens when the government intrudes into just about any market for goods and services; even with the best of intentions.
If parents and students were bringing their own hard-earned cash to the table on registration day at college, the cost would be lower and the curriculum would be more tightly connected to the long-term economic interest of the student.
That would be a giant step in the right direction toward healing America’s broken economy.