In an effort to combat the high cost if college, the Obama administration thinks it’s appropriate to make borrowing easier.
Under a plan likely to take effect next year, the Education Department would check the past two years of a borrower’s credit, instead of the current standard of five, for blemishes such as delinquencies or debts in collection. Also, any delinquent debts below $2,085 would be overlooked; currently, delinquencies of any amount are grounds for rejected applications.
I’ll leave aside the increased pile of loans for those who least can afford to borrow, and the increased risk of default from that; these questions are addressed in that Josh Mitchell article in The Wall Street Journal that’s on the other side of the link above.
There’s another problem that’s not addressed, either in the article or by the Obama administration.
That problem is a well-known one, except apparently in Liberal circles: subsidizing a thing increases demand for it. And if supply can’t keep up with that increased demand, the price of the thing goes up. A lot.
Making borrowing for college easier will stimulate demand for college. Since the availability of college can’t rise as quickly as that demand, the only outcome is…a large increase in the price of college. This is an increase, too, that’s actively abetted by college administrators, as Professor Peter Wood noted ‘way back in 2005:
Tuition is set high enough to capture those funds and whatever else we think can be extracted from parents. Perhaps there are college administrators who don’t see federal student aid in quite this way, but I haven’t met them.
Wood was talking, at the time, about Federal student subsidies, but his remarks apply just as surely to Federal efforts to make more money available to colleges via easier to get loans like these.