Wednesday, January 17, 2007

Time-Honored Washington Maxim Raises Tuition

The Democrats' eagerness to cut interest rates on student loans reflects a time-honored Washington maxim: If it's good, it should be subsidized. In this case, as in most others, the truth is just the opposite: If it's good, there's no need to subsidize it.

According to U.S. Census data, the average college graduate earns about $1 million more over his lifetime than the average high school graduate. That's a pretty good payoff for the investment in tuition, whether the money is borrowed at the rate promised by the Democrats (3.4%), at the current government-subsidized rate (6.8%), or even at the market rate (now between 7% and 11%).

Aid supporters also note that the cost of attending college has been rising faster than the rate of inflation for the last two decades. Yet easy money at taxpayers' expense fuels this escalation. Basic economic theory tells us that boosting the demand for a product or service, which is what government loans and grants effectively do, tends to raise its price.

Read more
here from Reason Magazine.


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