Government Subsidized Student Loans Have Economic Costs Dissertation or Thesis Complete

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Government Subsidized Student Loans Have Economic Costs but Political Benefits

Higher education has become increasingly important in the contemporary world scenario today where globalization has led to a higher need for a skilled labor force that is mobile and that is well-versed in the academic disciplines followed all over the world. In fact university education is starting to be seen as a hallmark for success, even though there are college drop outs who have become billionaires.

The recent spate of universities and higher education institutes has led students and their parents to believe that university education is mandatory for all those who want a nice career and income in their lives, and has increasingly blurred the distinction between necessary and mandatory education, compared to professional education that is mainly to benefit the individual.

In light of this dilemma, yet another question arises of helping students gain this education with the availability of subsidized student loans. This issue has gained precedence in the preceding years as the tuition fees have escalated and America is battling a recession, with several policy considerations to keep in mind.

This paper has looked at the legislation that allows these loans and the various other kinds of loans and alternatives that are available to students that help them meet their financial needs. The paper then looks at the specific amendments that the Obama government has proposed including larger Pell Grants, an expanded income-based repayment program as well as the fact that the government is talking about eliminating middlemen and providing loans directly to students.

The economic analysis in terms of costs and benefits to individuals and country concluded that subsidies have led to moral hazard while the quality of education as well as the numbers graduating has gone down. Additionally, the subsidies have led to misallocation of resources as more and more colleges are popping up to take advantage of federal money, while the rest keep on hiking up tuition fees in a bid to get their students to apply for more financial aid, and hence more dollars. The subsidies therefore are indicated to be the reason why the fee is increasing by leaps and bounds.

The political analysis of the loans and subsidies follows, where candidate looking for popular votes are not indicating the economic costs of subsidies and are looking at direct loans or lack of federal intervention, leaving the higher education sector up to their own market devices.

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Finally the statement that current presidential candidates have made is mentioned, along with a running analysis of what these entail. The paper then concludes by agreeing to the hypothesis that while the education subsidies have high economic costs, it is the will of the politicians that prevents them from taking any radical measures to free the industry from intervention.

Calls have been made to regulate the higher education industry and to prevent them from raising their tuition fees to exorbitant levels, but the idea that the subsidies are accruing a great cost to the economy is valid. Experts fear financial suffocation of students, who upon finding access to subsidized loans easy enroll in colleges, only to emerge with a mounting debt burden, and in some cases a degree they don't even need. Analysts are indicating that the student loan bubble might burst with implications that will be similar to what happened in the housing crash, and in light of this there are alternative discussed which look at how the subsidized loan regime is expected to change.

The paper is indicative of the real life trade-off leaders and publics have to make, and concludes with the predictions of what the future of these subsidies is going to be like.

Contents

Executive Summary 2

Introduction 6

Government Higher Education Loan Programs 13

Stafford Loans 16

Federal student loans to parents 17

Federal Direct Student Loans 17

Private student loans 18

Private student loan types: 19

Recent Legislation in Student Debt Laws 22

Larger Pell Grants 23

Expanded Income-Based Repayment (IBR) 24

Other Student Loan Facilities 25

Economic Analysis of Loans 26

Individual Benefits and Costs of Debt Burden 28

Benefits of subsidized loans to individuals 28

Costs of Debt Burden: 30

Country's Benefits and Costs of Subsidizing Student Loans 32

The benefits of subsidizing student loans to the country 32

The costs of subsidizing student loans to the country 35

Political Analysis of Loans 37

Politicians/parties most closely associated with programs 39

Arguments used to support programs 44

Past experiences of those trying to cut programs 45

Current candidates' statements on loans 47

Summary Analysis 51

Review 52

Future predictions 54.....

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