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Angry About Student Loan Explosion? Blame Federal Government

Education: Student loans, once a minor nuisance for grads, have turned into a nightmare for many of the current college generation. But have no fear: The government is doing something about it. And that's the problem.

'Shaky Colleges Get Help On Bad Loans" blares a page one Wall Street Journal headline. The story details how the Education Department helps colleges that have so many students defaulting on their loans, the schools are at risk of losing access to federal aid.

The idea is to help troubled colleges improve bookkeeping and other accounting techniques to make their numbers more presentable to the federal government.

Once again, government to the rescue. But a major new study suggests that the federal government isn't the solution of the student loan crisis; it is the problem.

In a sweeping new study, "Accounting for the Rise in College Tuition," economists Grey Gordon and Aaron Hedlund conclude that "demand shocks" from federal loans, subsidies and aid "lead to higher college costs and more debt, and in the absence of higher labor market returns, more loan default inevitably occurs."

In a nutshell, federal loan aid to colleges is pushing up tuition faster than inflation. Students must take out ever higher amounts of debt to pay for their education, but starting salaries haven't kept up. If students don't get good jobs when they graduate, many will default.

The study, published by the National Bureau of Economic Research, shows conclusively that growth in one program — the Federal Student Loan Program — was more than enough to account for the entire rise in college tuition from 1987 to 2010 — a stunning conclusion that suggests a massive market failure.

From 2006 to today, total student loan debt soared from $517 billion to $1.3 trillion, a 152% jump, to cover surging tuition costs. Over that same period, real starting wages for college grads were essentially flat.

Sadly, this should be no surprise, given recent history.

Whenever government gets involved in subsidizing anything — from sugar to home mortgages — higher prices emerge, leading to market disruptions and, often, a "crisis."

Protected by a phalanx of big government politicians and lobbyists, the federal government always blames the private sector for the crises that it creates. It then puts forth its "solution" — always more federal spending, more rules, more subsidies, less private sector.

This, by the way, is precisely what happened with the financial crisis, in which government regulations, mandates and subsidies pushed up low-income homebuying to record levels — with many people given mortgages that they couldn't possibly pay. The bust was painful, leading to what's now known as the Great Recession.

And yet our government never learns.

Fannie Mae and Freddie Mac still make up way more than half the market for all home mortgages, pushing up prices in the housing market — and sowing the seeds of the next housing crisis.

Today, education, like housing, is still considered by many — especially "progressive" Democrats — to be "too important to be left to the free market." It's a big reason why President Obama took over the student loan program in 2010 — effectively nationalizing it — and why it's drowning in red ink.

Paying for college education isn't too important to be left to the market. In fact, college education is too important to be left to an incompetent, overweening federal government's incessant meddling.