The Game of Loans
Kelvey Vander Hart, Fiscal Policy Contributor
There are two words that can make any college student shudder: student loans. This generation is facing a form of crushing debt that is brand new. Approximately 40 million Americans have some form of student loan debt, and this number continues to rise in correlation to rising cost of tuition. Where did this disaster start? In order to fully understand the magnitude of this problem, we must trace back to the 1950s, when the government decided to start playing the Game of Loans.
In 1958, President Eisenhower established the National Defense Education Act; this program funded a low interest student loan program that was advanced directly by the federal government. What started out as something that could potentially work drastically changed in 1965 with President Johnson’s ‘Greater Society’ and ‘War on Poverty’ campaigns. The Higher Education Act of 1965 changed the funding source of federal student loans; now, the loans would go through state and national banks. However, they were guaranteed by the federal government, so if the borrower defaulted, the banks would still get paid by the government. This strategy allowed the government to still provide student loans, but keep it off the books as an expenditure or a debt owed (which is very similar to what led up to housing market collapse of 2008).
The creation of Sally Mae (Student Loan Marketing Association) in 1972 by President Nixon made the Game of Loans being played by the federal government even riskier for the students. In summary, it allowed banks to pool together student loans, sell them to the federal government, and then acquire more loans. It took away any free market roadblocks that made banks think twice about loaning to certain students, and created a bailout system that kept the banks from failing and allowed them to loan freely without any consequence.
During the Clinton administration in the 1990s, it was recognized that having a federal bailout system was actually more costly than giving direct loans from the government. So, as only big government can do in its infinite foolishness, the federal government started to once more give direct loans, while CONTINUING to bail out banks from their loan failures. The housing crisis in 2008 gave clearance for the Department of Education to start buying out loans from the banks, allowing them to begin exiting this treacherous game. Finally, in 2010, President Obama put language within the Obamacare legislation that banned commercial banks from giving student loans, altogether taking away federal guarantee of student loans given by banks. However, the federal government still gives an obscene amount of federal loans to students each year.
The goal of this brief history of government involvement in student loans is to accurately set up the true purpose behind federal student loans. The problem with student loans is two-fold: it has created a trillion dollar debt for the federal government, and it has helped to financially enslave the current and future generations. To explain why the government would continue gaining debt for student loans, it is important to understand why they desire generations full of borrowers.
When big government is given the option, debt and disruption in the economy is worth having generations of citizens dependent on the government. After all, what better way to assure that you will always have votes than making the voter dependent on you? The process is fairly simple:
1. The federal government freely gives loans, allowing anybody, even somebody who will never be able to repay the loan or who shouldn’t be attending a four year school, the opportunity to go to a college or university.
2. The institutions know that students will have the money to pay for their educations, so they are able to increase tuition costs. No matter how high the tuition increase, they know that the federal government will come through, and continue to provide more student loans to meet rising costs.
3. The student is able to go to school, no matter how expensive, and obtain a degree (no matter its usefulness).
4. The student graduates, and attempts to enter the workforce. Maybe they receive a well-paying job in the field they were attempting to go into. However, it is more likely that they have a hard time finding a job in their field (Forbes reported that 60% of graduates can’t find a job in their field) or become unemployed (the United State’s reported unemployment rate is 4.9% as of August 2016, while the real unemployment rate is reported as 9.8%).
5. Graduates become enslaved to the loans they were given that they now can’t pay back.
6. Big government politicians and agencies swoop in and promise loan forgiveness, necessary monetary provision, and everything else needed to help the graduate get student debt off of their back. They don’t even have to deliver on these promises completely, just enough to seem trustworthy.
7. Graduate becomes dependent on big government policies, and votes for big government politicians in order to keep these policies.
The cycle repeats.
This economic issue is truly one of power and corruption. There are steps that can be taken in order to stop the crushing force of federally aided student loan debt, such as a gradual phase out of federal student loans in exchange for loans given from the private sector WITHOUT any government bailout plan. Students should also be encouraged to explore all educational options, and not feel that they must go to a four year school when a trade school or community college may be the correct option.
However, this situation will not change unless we start holding politicians economically responsible for this crisis. We must challenge current politicians and vet candidates on what they are willing to do to end this student loan crisis - HINT, making college free is not the answer, but would simply increase the problem. The Game of Loans being played by the government is enslaving generations and darkening futures, and we must work to create a government that does not have a goal of creating economic dependency.
To learn more about the Game of Loans campaign, head to TPUSA.com.
Follow the author’s other work here or follow her on Twitter @kovanderhart