The Federal Government is Blowing up the Higher Education Bubble

Tuesday, May 29th, 2012 and is filed under Blog

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There are a number of useful statistics that emblematize the unprecedented expansion of the federal government in recent years.  One of my favorites is the number of Americans enrolled in food stamps – increasing from 27 million to 46 million in 4 years.

Well, here is another statistic for you.  According to the Wall Street Journal, the amount of consumer credit held by the government has increased by 368% since 2007.  The main culprit?  Student loans.

Issuance of student loans has soared in recent years, hitting $867 billion at the end of 2011, according to an analysis from the Federal Reserve Bank of New York, more than credit cards or auto loans. The jump has led some to classify the student-lending market as a bubble, comparing it with the housing mess that nearly brought down the banking system in 2008.

But there is a principal difference between the 2008 bubble and the student loan bubble.  In the case of the former, as noted by the WSJ, the brunt of the fallout was shouldered by private banks (although taxpayers ultimately bailed them out).  When the student loan bubble pops, the “government” will be left holding the bag.  And we all know that the government means the taxpayers.  After all, private lenders have been banished from the student loan business, leaving taxpayers on the hook to fund the Democrats’ stimulus of Big Education.

Government-backed student loans are rapidly becoming the next battlefield in the fight for the free market.  Much like most government interventions, they artificially inflate the cost of higher education at the expense of the taxpayer, thereby engendering a further need for subsidization – all for the benefit of their cronies in higher education.

This is a seminal issue due to the gravity of such an impending bubble and the effect that it has on the private sector.  As we search for conservative congressional candidates throughout the country, we will be soliciting their views on continuing the current student loan policy.  This might sound like a no-brainer, but keep in mind that just 30 Republicans in the House voted against the recent extension of subsidized Stafford loans for undergraduates.

It’s quite evident that the issue of student loans, much like that of farm subsidies, will weed out the faux conservatives from those who really support fundamental free-market reforms.