When billionaire Mark Cuban suggested a $10,000 cap/year on student loans, he was instantly criticized as a 1% elitist. Cuban spoke out last month after Sweet Briar College announced its closure due to declining enrollment and financial struggles. But in painting Cuban as out of touch with the reality most college students face, his critics overlooked the logic behind his argument. With a $1 trillion student loan debt we can no longer ignore the problem.
If student loans weren’t so plentiful and easy to obtain, the cost of college would fall. Because a college degree is marketed as the only ticket to middle class life, students don’t even consider pursuing an Associate’s Degree, even though it would reduce their costs and increase chances of employment significantly. They will cringe at the expense of a four year college degree, but never consider forfeiting it.
Students Loans Feed Higher Education Costs
Rarely does anyone else talk about lowering the price of a college education. It’s more popular to advocate for increased funding, interest rate relief, or even outright forgiveness on all student debt.
But as Cuban rightly pointed out, such a plan wouldn’t give schools any incentive to contain costs. And students would continue to borrow against their overly optimistic visions of future earnings, graduating into indentured servitude rather than the good life.
The Economic Effect of a $1 Trillion Student Loan Debt
Student-loan debt is a drag on individuals as well as the broader economy. Many recent grads cannot find jobs and instead of buying houses and starting families, they move back in with their parents. Cuban owns the website collegedebt.com, which keeps a running tally of the trillions in student debt Americans hold (currently at more than $1.3 trillion). That’s a lot of money not being spent on cars, clothes and other purchases that drive the economy.
The Chorus of Dissent to the Proposal – Could We Expect Anything Less?
However, not everyone agrees with Cuban that the amount of debt is the problem. Professor John A. Tures points out that 70% of borrowers take on less than $25,000 total. Loan defaults and the schools with the highest rates of default are the real problem, according to Tures.
Others question Cuban’s claim that tighter lending would lead to lower tuition. Perhaps universities would simply disregard students with limited means, however gifted. We’d return to the days when college was a luxury for those with the ability to pay for it out of pocket. This hardly seems like a recipe for greater economic parity in America.
The biggest critics of Cuban’s proposal are most likely the administrators and others who benefit from the price spiral in education. People who reap the rewards of these kinds of gravy trains are usually the first to point a finger at any suggestion of a return to sanity. Meanwhile, administrative salaries rise and state-of-the-art dormitories are built as tuition increases and schools increasingly rely on the cheap labor of adjunct faculty.
Ultimately, it’s hard to dismiss Cuban’s comparison of higher education to the recent housing bubble. Enabling people to pay for something they couldn’t otherwise afford is a great way to keep prices rising. Easy money from government loans ensures a steady flow of demand for the education universities offer. But unlike with the housing crash, consumers would largely benefit from a burst tuition bubble.
What do you think Mark Cuban got right (or wrong) about Student Debt?
The above is a guest post written by Anum Yoon, owner of CurrentOnCurrency.com, a personal finance blog for college students and 20-somethings.
Editor’s Note: I agree with Anum’s final conclusion about Mark Cuban’s proposal. Mark is on to something here. The student loan system as it’s currently constructed is a gravy train for colleges and universities, and is probably the leading cause of runaway college costs. That’s precisely why the education establishment will cry foul at any suggestion that student loans be limited. I’ve written several posts on this subject, and you can read my posts on the college and student loans of this site – Kevin.