Sen. Claire McCaskill visited the University of Missouri yesterday and spoke to students about the Federal Student Loan Program and her desire to lower the interest rates so students aren’t burdened by massive debt when they finish college.
A noble goal, right?
There’s a few things about this that need pointed out. Starting with the whole “federal” part of the student loan program.
When there is a product or service, a free market will dictate a price that is mutually beneficial to both the buyer and the seller.
If you want an apple, you go to the market and find someone selling apples. If you are happy with the price, you gladly pay the person. If you aren’t, you find a seller with an equally good product but a better price and buy from them.
If, however, a third party enters into the situation and offers a guaranteed loan for the apple, there will be more buyers due to the ability to pay for the fruit. The increase in buyers, or the increase in demand, will result in a rise in prices as the supply hasn’t changed.
There are still only so many apples, but more people now have money to buy them.
Because the price of apples is rising, the third party decides they need to increase the amount they will loan to people to buy apples, and the cycle continues ever upward.
This is basic economics. It’s the theory of supply and demand.
Now, replace “apple” with “college education.”
The theory doesn’t change because the items being purchased changed.
This is why college tuition is skyrocketing and students are finding themselves under a mountain of debt after graduation.
There is evidence to suggest that the HEA has been a factor in rising tuition costs. Rising tuition costs then result in political pressure to expand the HEA and provide tax credits and deductions for higher education expenditures; this in turn increases tuition
costs, which leads to further expansion of HEA and use of the tax code to affect taxpayer behavior. This is the type of cycle that Hayek and Ludwig von Mises suggest happens when government acts outside of its fundamental role and fails to take into account how the market works.
When I brought this fact of basic economics to Sen. Claire McCaskill’s attention, she said she’d never heard of such a thing before:
Of course, she didn’t address the question, because she can’t argue with basic economics.
So they use class warfare as a red herring to move towards the end game.
“Only the Rich Will Go To College”
When Sen. Claire McCaskill visited Northwest Missouri State University last year, she started her speech with some old fashioned class warfare.
Here’s what she said:
“I’ve had three seventeen year olds, and I would not loan money to any of them.”
But she’ll be happy to give them your money and a lower interest rate.
However, that’s not the money line I want you to digest. It’s this one:
If the federal government…no longer backed these loans, and Pell grants were no longer available, who would go to college? The children of rich families would go to college.“
There is no more blatant example of class warfare to offer in this discussion.
In the world of a progressive like Sen. Claire McCaskill, she knows she doesn’t have facts or basic economics on her side, so her only path to success is through emotions like jealousy and anger.
As I pointed out above, her premise is fallacious. If the federal government were to stop guaranteeing loans, the market would not stay static. The prices wouldn’t stay where they are. They would have to react to something that dramatic.
With the removal of guaranteed money, do you think the prices would increase or decrease?
Basic economics tells us that when demand decreases, the price decreases.
She can’t tell students that. She has to point them toward the rich kids, or the jocks, and make them hate them.
Which is why Sen. McCaskill’s partner in this, Sen. Elizabeth “Fauxcahontas” Warren isn’t wasting any time piling on the class warfare, only she isn’t making rich kids the boogeyman. She’s going back to her old favorite: the banksters.
‘If the Federal Reserve can float trillions of dollars to large financial institutions at low interest rates to grow the economy, surely they can float the Department of Education the money to fund our students, keep us competitive, and grow our middle class.”
That is the logic behind the first piece of legislation from Harvard Law School professor-cum-Massachusetts senator Elizabeth Warren, introduced in the Senate two weeks ago. The Bank on Students Loan Fairness Act seeks to extend to students the same loan interest rates allegedly offered to the country’s chief financial institutions. Among the problems with the bill? Said interest rates for said greedy banks do not exist. But that is a minor detail in Warren’s latest exercise in cheap populism.
They claim all they want is to guarantee loans for American children, so they can go to college. But like almost everything a progressive does, that’s not the end-game. It’s just a play in their long game.
Incrementalism and Free College for All
One of the things conservatives need to understand is the idea of incrementalism.
The right doesn’t do this well. We want it all now.
Well, in our defense, we aren’t alone. The grassroots progressive wants it all right now too. But the leaders of the movement play a longer game, and they are fantastic at it.
In this case the end-game isn’t a guaranteed loan and low tuition rates.
It’s free college for everyone.
They don’t want people graduating college with massive student loans. Progressives want the government to pick up the tab for everything.
Those aren’t my words.
Behold, Sen. Elizabeth Warren:
[Christopher] Lydon asked why America is talking about containing the interest rate on college student loans when countries like Europe are sending students to school for free. Warren did not say outright that she wanted free education, but responded, “You preach to the choir on this one.”
Free tuition for all sounds pretty awesome, until it dawns on you:
Sweden has free tuition for all. How’s that working out for them?
Swedish colleges and universities are free. Yep. Totally free.
But students there still end up with a lot of debt. The average at the beginning of 2013 was roughly 124,000 Swedish krona ($19,000). Sure, the average US student was carrying about 30% more, at $24,800.
How is this possible? It all FREE!
While the costs of education are far lower than in the US, over the past two decades sometimes-hefty fees have become a fact of life for many European students. Britain got them in 1998 . Some German states instituted them after a federal ban on student fees was overturned in the courts. In fact, since 1995 more than half of the 25 OECD countries with available data on higher education have overhauled their college tuition policies at public institutions , with many adding or raising fees.
But the tuition’s free, right:
No, TANSTAAFL, I said:
Swedes who earn a salary on par with the average municipal worker contribute the equivalent of 70 percent of their monthly salaries in taxes, a new study has found.
Workers who earn 25,000 kronor ($3,810) per month end up paying 69 percent, or 17,200 kronor per month, in taxes, according to an analysis carried out bySwedbank.
According to Statistics Sweden, the average salary of a municipal worker in Sweden in 2011 was 25,000 kronor.
Meanwhile, two-child households earning 55,000 kronor per month contribute 38,000 kronor in taxes, Swedbank found.
All told, taxes account for Swedes’ largest monthly expense by far.
The idea of free tuition for all is attractive, if you ignore the reality that someone, somewhere has to pay for it.
And by someone, I mean you.
That’s the end-game. Progressives like McCaskill and Warren are content to take small steps, like making the federal government the source of student loans, because they know it’s still a step forward. It leads to the next step, like lowering interest rates.
Is there any doubt that someday, either one of these two or another Democrat will demand loans be made with no interest? It’s not too far after that to start wondering why students should have to borrow money for a “right.”
Step by step. Little by little. This is how the left works.
The road McCaskill and Warren want to go down leads to higher taxes for everyone, higher fees for students and doesn’t accomplish the goal they say they’re going to fix. All the industrialized nations that offer “free” college still have students graduating in debt.
Is there any reason to think Sen. Claire McCaskill and Sen. Elizabeth Warren know something that all of Europe doesn’t?
We know where they are, where they are going, how they’re doing it and Europe shows us how it will end up.
Perhaps, for once, the solution shouldn’t be sought in the failures other nations already discovered, but in the understanding of basic economics. The solution isn’t more meddling by an ever expanding central government, but in letting the market do what it does best.
Creating mutually beneficial agreements where everyone gets what they want.