Get the government out of student loans

With student-loan interest rates set to spike in July, Democrats in Congress and President Obama are up to their usual tricks, pushing legislation that would keep rates low. Instead of seizing the opportunity to stick up for free markets—and students—and distinguish himself from his opposition, presumptive Republican presidential candidate Mitt Romney is joining the sleight-of-hand game. That’s a mistake that a supporter of free markets shouldn’t have made…

If politicians really want to help students, they should give them a real-life lesson in economics. Start with the numbers. Either directly or through guarantees, the federal government had disbursed $848 billion in total student-loan debt as of last September, up 17.5 percent in a year. The Consumer Financial Protection Bureau’s Rohit Chopra estimates that students owe another $152 billion in private loans, taking the total to $1 trillion. Last year, the average debtor—or “student served,” in educational-bureaucracy parlance—took on $10,467 of federally guaranteed debt for just one year of tuition.

Even as everyone else is cutting back, then, students are borrowing more—and eight out of every ten dollars that they’ve borrowed came with some kind of federal string attached. That shouldn’t be surprising: when Washington subsidizes something, it makes more of it. This is true of student-loan debt, just as it was of mortgage debt before the credit crisis that started in 2007. The best thing for students would be for the government, instead of spending another year helping students pretend that they can afford all this debt, to get out of the student-loan market altogether.