The Effects of Student Loans

Posted by Commitee for Education Funding on September 8, 2009 · Leave a Comment

Wall Street Journal Article on Student Debt

This article explains the effects of college loans on students: an overburden of debt after graduation. Continue reading below for more analysis.

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As I mentioned in my last blog post, college prices are rising. I attributed this increase in price to Pell Grants, which are government vouchers to low-income students that don’t need to be repaid. The Wall Street Journal offers a different cause for the increase in the price of college: student loans. In many ways this makes more sense than my argument. While Pell Grants are limited to students of a certain income level, anyone can access students loans. So while Pell Grants may have increased the price of higher education due to an increase in demand among low income students, student loans increased the demand of all students.

The price of higher education is increasing at a drastic rate. Whether this is due to Pell Grants, loans, or something else is up to debate; whats not debatable is that sending more students to college is a good thing and graduating with debt is a bad thing.

The price of higher education is increasing at a drastic rate, over four times one measure of inflation. Whether this is due to Pell Grants, loans, or something else is up to debate; what's not debatable is that sending more students to college is a good thing and graduating with debt is a bad thing.

And why shouldn’t student loans increase the demand for higher education? Student loans give families of all income levels the ability to send their children to the colleges of their choice regardless of their financial situations. Without loans, many students would end up compromising on their education because of the current economic recession. However, graduating with debt is never good for students, especially in a tough job market. That’s one of the benefits of Pell Grants, scholarships, and other non-loan forms of aid: students don’t have to worry as much about debt.

Student loans and Pell Grants provide an additional benefit: reducing the deadweight loss associated with the positive externality of education. In other words, higher education does more for society than simply satisfying the desires students and schools. It improves the economy in the long run by creating a more productive work force. It trains people to be better at their jobs. It creates research that can cure diseases, create more effective means of communication, and create useful technologies. Therefore, the amount of higher education that students demand and colleges supply is less than society as a whole demands (or, in economic terms, a positive externality).

How can we solve this problem of not enough people getting an education? President Barack Obama can deliver a motivational speech to the nation’s school children, as he did today. Or colleges, universities, the government, and the private sector can provide scholarships and loans that give students the ability to pay for college one way or another. Even though grants may raise the cost of college and loans may give students problems when they graduate, the result of more kids going to college is worth it.

After all, even President Obama had to pay off student loans.