College Students are Welfare Queens

Hoping to make high tuition costs a campaign issue, Democrats in Congress introduced legislation yesterday that would cut interest rates on students loans roughly in half - to 3.4 percent for student loans and 4.25 percent for parent loans. The cost to the taxpayers - the subsidy the federal government gives to Big Banking- would be about $37 billion over five years. That's a lot of money, and I'm sure corporate America will reward Democrats for the proposed gift.

I aint no expert on edukation, but I do know that lowering the cost of student loans to consumers leads to higher tuition across the country. This is because universities charge more when they know that students can afford more. Lowering the cost of student loans also increases demand for college, which leads to tuition increases. Perhaps most disturbingly, subsidized student loans distort the economy by making it profitable for young people to choose career paths that are simply not worth accumulating massive debt for (education, philosophy, art, etc). The result is higher tuition for everyone (as demand for schooling increases) and lower salaries for many jobs (as the market is flooded with people with degrees). Most notably, loan and other education subsidies have decimated teacher's salaries by churning out thousands of more teachers than the economy really needs. But, instead of worrying about the serious market misallocations caused by government education subsidies, many members of Congress are cheering it on.

[Representative] Miller and [Senator] Durbin defended the [$37 billion] expense, saying it's worth it. With higher education costs continuing to rise faster than inflation, many potential students are choosing to forgo college because they fear the debt they would incur, the Democrats say. Other students choose more lucrative careers over lower-paying jobs they might prefer, such as teaching, because of the burden of paying off loans, said Durbin, the Senate minority whip.

"They have to take the best-paying job; they have no financial alternative,"Durbin said. "Sometimes that may not be the job they want or the best job for America."

It's bad enough that taxpayers are forced to subsidize people who purposefully choose careers that are not finanically rewarding. It's even worse that these subsidies make the probem worse by increasing tuition costs and lowering salaries for low-paying jobs.

Via CQ (subscription required).