Problems caused by government being the largest lender over student loans Essay

(Wolfram 10). Usually the tax credits go to middle and upperclass families and schools know that those families are more able and willing to pay whatever the tuition cost is for the school their children choose to attend. A study done by Claudia Goldin of Harvard University and Stephanie Riegg Cellini of George Washington University looked at 2,650 forprofit schools. They found that those who received governmental support had tuition prices about 75 percent higher than those who did not receive government aid (Bennett 32). Even Mark Cuban, the owner of the Dallas Mavericks and star of Shark Tank said, You know who knows that the money is easy better than anyone? The schools that are taking that student loan money in tuition. This is exactly why they have no problems raising cost for tuition each and every year (Bennett 33).

State governments have also responded to the generosity of federal aid in a way that encourages the rise in tuition. Gary Wolfram, Professor of Political Science at Hillsdale College in Michigan, observed that, The net effect of federal grants may be that the state appropriation is reduced and tuition at state universities rises so that the state is able to capture some of the federal assistance in the form of a reduced higher education budget. Consequently, states are not helping to make college more affordable for students, they are reducing the amount the state contributes in order for them to spend that money on something else while their state university tuition rises, knowing that the federal aid will cover the increased cost (Leef).

What a mortgage is to the purchase of a home, the student loan is to tuition costs. Like the 2008 bursting of the home mortgage bubble and the subsequent recession, so is the free flow of money for school loans. The influx of subprime loans to people who could not afford that much home should have taught leaders. Giving too much money to students to pay for an education that will not reap enough lifetime income to make it worth the investment would yield the same results. Just like the real estate and homebuilders benefited from easy money in housing, the colleges are benefiting from easy money in federal aid (Bennett 13). The Stafford Loans program is the largest loan program. It is currently financing $902 billion dollars in student loans. Stafford Loans have increased 60% in the last 5 years. Most recently, Obama Care in 2010, created SLOP, the Student Loan Overhaul Proposal, which transferred control of all federal student loans to the Department of Education. Before 2010, private lenders received federal subsidies to lend money to students, now the federal government will no longer pay those subsidies. With the government being the largest lender and maintaining almost complete control over student loans several problems are created. The government does not follow basic banking rules for lending money. They do not evaluate the creditworthiness of the borrower and therefore accept great risk (Bennett 25).