Hipocrisy: Federal Reserve Admits Student Aid Drives Tuition Inflation

According to the Federal reserve:

the New York Fed makes the allegation that the federal government has fueled a vicious cycle of higher prices and government aid that ultimately could cost taxpayers and price some Americans out of higher education, similar to what many economists contend caused the housing bubble and bust.”

This type of cycle is a re-cycle.  The Clinton Administration late in its second term ordered the nation’s lenders to make programs for lower income consumers. These lenders virtually had to overlook sound economics and make available types of loans regardless of the ability to repay, or their credit score.  The outcome we all know now so well, was hyper- inflation of housing prices.  The consumer could obtain insane amounts of funds not matching their economic status, and the market answered by hyper-inflation—if the government is giving out “free money” so to speak, let’s inflate those housing prices.

Here we find the same dynamic.

The Fed’s David O. Lucca, Taylor Nadauld and Karen Shen calculated that annual student-loan disbursements–which include some private loans, but mostly come from the federal government—more than doubled between 2001 and 2012, to $120 billion. These loans allowed Americans to borrow at below-market rates with modest credit reviews and no assessment of the borrowers’ ability to repay. That explains why the average annual loan per student rose after inflation by 58 percent, to $5,777.”

The other blow backs to Obama’s student aid/loan restructuring are the loan defaults, which add to the already 18 million in national debt, and the inevitable turn about then to higher taxes.  So in essence, the middle class, which Obama cited would be the huge winners with his new student loan program, are the big losers.  Just like with the housing inflation, apply it to the student loan program, same economic principles of “free money” atmosphere, and thus we have college tuition inflation. 

The New York Fed found that a $1 increase in the federally subsidized student lending cap meant that tuitions rose by as much as 65 cents…”

One little unknown fact about the new and improved government backing of student loans, is at the graduate level.  “Grad-plus” is the program for graduate students.   There are no “caps” on the amount, and it will cover a full ride, expenses such as housing, books, and even meals.  Georgetown University has found a  way to game this system.  At Georgetown, they have worked out a way utilizing the loan repayment options and “rules” that the student will never ever pay a dime of the loan back.  Virtually, one leaves prestigious Georgetown with that coveted degree in law, without spending one red penny, and having no debt.  I believe this is nicknamed the “Chicago Repayment Plan“.

Source Breitbart Big Government