Barron’s editorial page editor addresses the college debt bubble

Thomas Donlan devotes his latest Barron’s editorial commentary to the growing problem of college debt.

College graduates are more likely to be working, to express job satisfaction, to have health insurance, and to move up from their parents’ level of income.

In a sidebar, however, the College Board cautions, “All of the differences in earnings reported here may not be attributable to education level. Educational credentials are correlated with a variety of other factors that affect earnings, including, for example, parents’ socioeconomic status and some personal characteristics.” …

… Well-intentioned politicians have been ignoring the sidebar warning for decades. Starting with the education benefits in the GI Bill of Rights after World War II, the government has been running an experiment about subsidizing higher education.

Sending 2.2 million ex-soldiers to college was a huge social success. Enthusiasts credit the GI Bill with training many of the engineers, scientists, managers, bankers, and teachers who sparked the postwar prosperity. …

… But the GI Bill is a good lesson too well learned. Further subsidies have created more demand for higher education among people less likely to benefit from it without intense remedial programs. Rapid increases in the supply of federal loans and subsidies have provided gushers of tuition money for almost every campus and trade school in the U.S., including the third-rate ones that should wither on the vine. Instead, tuition and fees and nonteaching staff have grown in response to the supply of federal loan money, like kudzu reaching toward the sun.

In 2012, 70% of American students left college with loans to repay. The average debt is $29,400. The total debt being carried is $1.08 trillion, and $120 billion of it is in default or is more than 90 days’ delinquent. In response, politicians and bureaucrats try to find ways to make loans more affordable, or nonrepayable.

This is a slippery slope with no bottom. As it went with Internet stocks and houses, so it goes with education: Americans are used to borrowing their way to prosperity, and they won’t easily give up the habit.

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