Cost vs Affordability

Paying for College
1

<p>Politicians, including our President, have repeatedly made calls about making college "more affordable". It seems, though, that this notion of "affordability" doesn't get to core matter of the ever-increasing cost of college.</p>

<p>Although they may seem to be the same, "affordable" does not equal "cheap". Affordability simply means you can buy something that was previously out of your reach. Affordability can be achieved by giving people more opportunities to take out loans. Being able to take out a loan, though, doesn't make something cost less.</p>

<p>A classic example is housing. Various administrations and Congresses have pursued the goal of affordable housing by underwriting home loans. (at a more general level, the Federal reserve has also followed policies that make it easier for lenders to offer loans) When the government secures a loan, it effectively reduces the risk to lender, allowing the borrow to buy a more expensive home on debt. The net result was the housing crisis, which still mars our real estate market (just check the foreclosure numbers).</p>

<p>Sadly, it's the same story with financial aid. Government aid is offered in the form of government-insured (and sometimes government-subsidized) loans. While loans allow people to go to college, they don't tackle the fact that college costs are increasing disproportionate to inflation.</p>

<p>The problem is, we may be in for a "college crisis". This policy of encouraging loans and "affordability" will allow people to borrow while the costs of college continue to rise in a speculative bubble. Eventually, things have to burst, leaving college debtors defaulting and banks (once again) in trouble, perhaps needing another government bailout.</p>

2

<p>I have often wondered how the relatively easy access to educational loans has contributed to the rise in college costs and I’m sure that the fact that people can pay (ie. borrow) has made colleges less than inclined to watch their budgets and keep spending and costs in line. The amenities offered at schools now are incredible compared to when I was a student, and my school was pretty nice as far as colleges went! </p>

<p>A huge amount of the outstanding student loan debt already rests with the government, and it’s extremely difficult to get rid of the debt through bankruptcy. The government loans are already eligible for certain loan forgiveness programs, income based repayment, extended terms, etc. so there should be enough flexibility there for most of the current borrowers, who are also subject to lending caps. The private lenders are another story but those loans often have cosigners as well.</p>

3

<p>I think it was even worse when Sallie Mae was letting students sign for huge loans…no co-signers. Now, at least with the need for co-signers it will keep some of this in check.</p>

4

<p>“… they don’t tackle the fact that college costs are increasing disproportionate to inflation.”</p>

<p>Most of our goods now being manufactured elsewhere (producing falling prices) has kept average inflation low. College is labor-intensive and can’t be outsourced (unless students are willing to go elsewhere), so their costs rise faster than the average rate.</p>