How the Government Caused the Student Loan Crisis

Many Americans want the government to help solve the student loan crisis. Do they not realize the government caused the crisis in the first place?

I went out to dinner recently with a friend who has a sister exactly my age (34). I know his sister; she’s normal, pretty, bilingual, sober, healthy —- and yet —- lives at home with her parents and hasn’t had a job since she was 24.

I ask my friend, What does she do all day?

Ummm, she watches a lot of YouTube, I guess. 

I’m fascinated. Does she have plans to do anything with her life? At all? Ever?

She’s thinking about going to school for video editing. She’d be good at it, and there are lots of jobs in that field.

Ugh. People think school is a turnkey solution: Just register, attend, graduate and POOF! Life is taken care of! 

This is so not how the world works. Where did this mindset come from?

A College Degree is the American Dream

From a young age, Americans are told that a person is set up for success with a college degree.

This is just another example of a cultural paradigm that benefits the economy and country as a whole, but hurts the individual.

Related Reading: What are Cultural Paradigms?

A cultural paradigm is a theory about how something should be done or thought about. Cultural paradigms, when compared to personal paradigms, are different because the purveyors of a cultural paradigm profit from its adoption.

For example, viewing homeownership as a sign of success is a cultural paradigm. When someone buys a home, they are contributing more to the health of the American economy (financially) than they are to themselves personally.

Related Reading: The 30-Year Mortgage is a Scam

So this begs the question: Who benefits from America’s College is the Key to Success cultural paradigm?

Depressingly, it turns out to be the government.

The Timeline of Events

In 1958, the government wanted Americans to excel academically. Not for intrinsic reasons, but to look good when compared to China, Russia, Germany, etc.

It created a federal loans program which encouraged banks to issue more student loans. When a bank lends money to a borrower, there is always a risk the borrower might not pay back the loan. The government’s program alleviated this risk by guaranteeing to pay the bank for student loans that went into default.

The desired effect took place. By 1986, student loan origination in America was up to $10 billion. More Americans than ever were graduating with 4 year degrees and the message that going to college will make you successful was further ingrained into our culture’s psyche.

Keep in mind, however, that college tuition in the 80’s was reasonable (average cost for a four-year public school degree was $2,100, using 2018 dollars) and students didn’t borrow more than a couple thousand dollars.

Skip forward to 2009. The government was dealing with the financial crisis, and perhaps to boost morale or keep Americans busy while the job market was bad, it passed legislation which allowed it to lend money directly to students, cutting out the banks.

 

This move is what ultimately caused the student loan crisis we have today.

By 2018, the average cost of a four-year public school degree rose to $10,300, student loan origination was $120 billion, and total student loan debt outstanding had reached $1.2 trillion.

The government’s intentions were good. Where it failed (per usual) was in execution and thinking through the consequences of its intervention.

College Tuition Soars

Starting in 2009, colleges were suddenly paid tuition directly from the US government.

The government never considered the impact of their intervention. Maybe part of the legislation should have included tuition caps or regulation around what a government-sponsored tuition could pay for?

Because let’s be honest. This is not a student loan crisis we are dealing with in America, it is a college tuition crisis.

Regardless of the industry, when the government offers you trillions of dollars, you will adjust your prices and practices to absorb the free money.

And we’ve seen this before.

Leading up to the financial crisis of 2008, the government wanted banks to issue more mortgages. Since the government guarantees mortgages, the banks made bad loans. After all, the government was mandating the banks issue them while simultaneously taking away any risk to the bank. So why not?

Related Reading: America’s Big Brother Housing Market

Same thing happened with colleges.

Whether it’s brand new football stadiums, state-of-the-art facilities, million dollar salaries or otherwise, American colleges and universities found plenty of reasons to increase the tuition.

When the government wants to pretend we’re a socialist country, it throws money at education. But then it remembers we are a capitalist country so it doesn’t cap school tuition or regulate how the money is spent.

And guess who gets screwed?

You. The student.

And We Want Government to Fix This?

Most people don’t remember to blame the government for the student loan crisis. Which is why it’s hilarious that people are looking for the government to solve it.

Below are the reasons why the government needs Americans to keep taking out loans and going to college:

Global competition. An educated population is an asset against other developed nations.

Economic activity. GDP is a measure of success as a country. Private and public universities contribute significantly to our country’s economic activity. Whether it’s hiring professors, buying new equipment or building new facilities, education is over 7% of GDP, the highest in the world.

Billions in profit. The government will profit around $183 billion from student loans issued as of 2018. However, this estimate does not account for defaults. That said, unlike other forms of debt, student loans cannot be forgiven and the government will get their money from the student one way or another.

Politicians will be politicians and campaign on “fixing” the student loan crisis in our country. Ignore them. They are individual puppet heads that have nothing to do with the larger machine and that machine’s agenda to take part in America’s student loan industry.

This Crisis is Heartbreaking

Every human’s objective in life is to connect with their soul and express their soul’s authentic desires. To share with the world their gifts.

But the cultural paradigm that says a college degree will make you successful, has stripped the freedom from millions of young people. America is supposedly the Land of the Free, but it’s truly anything but. When you’re imprisoned by debt and taking jobs that don’t feed your soul and living in a constant state of stress of how you’re going to pay the bills — who has the time to be free?

Let alone the time to spiritually heal and grow and deepen their relationship with nature and loved ones.

Related Reading: Why Spiritual Healing Matters

My friend’s sister, about to go to school for video editing at age 34, having no work history and no prior knowledge of video editing, has been sold a bill of goods.

Don’t let that happen to you.

 

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