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Peter Schiff Was Right: Federal Aid Inflates College Tuition (Video)

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Here’s another story for the “Peter Schiff was right” archive and another testament to just how clueless mainstream economists can be.

Three years ago, it was already becoming clear that ballooning student debt defaults were becoming a major problem. CNBC reported that the loan “industry underestimated defaults by a whopping $225 billion.” We wrote earlier this week about the latest White House data revealing just how much worse the defaults have become.

In the summer of 2012, Peter appeared on CNBC to debate why the federal government should get out of the student loan business. Diana Carew, an economist with the Progressive Policy Institute (PPI), appeared alongside Peter to defend the need for federal college funding.

15 09 16 schiff & carew cnbc

You can watch the video below, in which Carew counters Peter’s economic arguments with straw men, suggesting that Peter wants to “get to decide who goes to college.” Carew used the same emotional rhetoric employed by politicians:

Investment in human capital is never a waste of money. Of everything the government can spend its money on – entitlement programs, subsidizing the housing sector – human capital should never be sacrificed.”

They both agreed that college degrees are no longer worth as much as they cost, but they disagreed on the root cause. Peter adamantly insisted that colleges are “basing their prices on the fact that students can borrow money with government guarantees.”

Carew literally rolled her eyes. “I don’t think colleges are setting prices based on how much students can take out of the bank… I’m well aware of basic economics. Thank you.”

Fast forward exactly three years. The Federal Reserve Bank of New York published a research paper this July entitled, “Credit Supply and the Rise in College Tuition: Evidence from the Expansion in Federal Student Aid Programs”. Its major conclusion:

We find that institutions more exposed to changes in the subsidized federal loan program increased their tuition disproportionately around these policy changes, with a sizable pass-through effect on tuition of about 65 percent.”

Last month, Carew published an article for PPI directly acknowledging this finding. Of course, she gives no indication that Peter Schiff had said the exact same thing directly to her three years ago. Instead, she calls the finding “groundbreaking,” while arguing that flat out federal subsidization of college tuition is no longer the solution for young people who don’t fit within the “standard college mold.” She concludes her article:

Still, until Democrats move past the “debt-free college” approach, and the notion that college degrees are the only answer, 2016-themed rhetoric on college affordability will be little more than that.”

Quite the reversal from her position three years ago, when she seemed adamant that sending absolutely everybody to college was the economic panacea to the United States’ troubled economy.

The student debt crisis has only grown in the last three years. Don’t assume that just because you don’t have any student debt that you will be unaffected. Just as the subprime mortgage crisis rattled the entire US economy, the student debt bubble will reverberate throughout the country. Enjoy the video below, then learn how to prepare with our free white paper on the topic:


Highlights from the interview:

“Just like the government inflated the housing bubble, the reason tuitions are so high is because government guarantees the loans. Now students take these guarantees and bid tuitions through the roof. Take the government out of the equation, and the colleges and universities have to lower tuitions so students can afford to go. But the beneficiaries of these high tuitions are not the students. They get stuck with debt. It’s the colleges and universities that can sell overpriced degrees. Unfortunately, right now we’ve got a lot of people with college degrees waiting tables, cleaning toilets, driving taxis. They have enormous government debt to pay back out of these small salaries that they earn…

“Wasting money, overpaying for worthless degrees is not going to help the economy… A lot of the curriculum, a lot of the courses do very little to improve human capital. Plenty of people went to college before the government got involved. It just didn’t cost nearly as much…

“If the government got out of the market, students couldn’t borrow money so cheaply. Interest rates would rise, and students wouldn’t be able to bid up prices…

“Today, a college degree is not worth the price that you pay for it. Not only in the cost, but the five or six years that you’re not in the labor force. If we simply got the government out of education, college tuitions would plunge…”

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14 thoughts on “Peter Schiff Was Right: Federal Aid Inflates College Tuition (Video)

  1. Ray Dodson says:

    The moderator did not do her job. She should have let Peter Schiff get a word in the conversation. She failed to do that. Carew does not have a clue about economics. Peter has more knowledge in his big toe then Carew has in her whole body. Should you not agree with me then hire her as your economic adviser and see where your money goes.

  2. Laura says:

    I cannot believe that people are so ignorant that they can’t see that this is just common sense. Everybody seems to be stuck in a “fantasy” world instead of facing the reality of what is actually happening. I think part of the problem is that nobody understands or cares to learn basic economic principles. I went to school in San Diego in the early 80’s and we never had the “ballooned” tuition. I was poor as a rat and was still able to work and go to school and both my parents were dead. I got no help from the University or the Government. It took me a little longer, but that Engineering degree got me through my life and has saved me. So, if I could do it without help, then it just goes to show that we don’t need the Government messing with anything to screw it up. College should be a privlege and the Government interference has devalued it just like they have devalued everything they get their hands on, including our currency.

  3. karl says:

    Best women or rather little blonde Airhead is totally funny spouting out the typical socialist emotional dogma of Rights – I want the right to have a free motorcycle and free house !!!

    I’m surprised nobody has mentioned that Bill Gates never completed college and of course neither did Steve Jobs as many others – not to mention of those who were very successful in their jobs and businesses their degrees had nothing in common with their success.

    Furthermore the trend right now is in coding schools whereas many college graduates are now taking in actually making money. This is the case where the marketplace is working as it should wear as people are learning skills that are needed not trying to create so-called jobs for the skills. That is akin to manufacture building a product and then trying to find clients who are in fact not interested in the product in itself.

    What Peter mentions is perfectly Logical. Anybody can realize that if I have several

    • Todd says:

      Perfect example of a debate between a factual, market based conservative and a hypothetical, feelings based liberal. After Schiff says nobody has a right to an education, Carew tells us every student should have the “opportunity” to get an education. For your information Ms. Carew, everybody already does (with rare exceptions). Perhaps she doesn’t know the difference between rights and opportunities. What’s amazing is that not only I agree with her, but Peter Schiff does to (about opportunities). To me though, it sounds like Carew really believes education is more of a right and we all should pay for it no matter the price. And the sad part is, I’m guessing most young Americans believe the same thing. Of course they’re the same Americans defaulting on their loans, so why not be for something you don’t have to pay for.

  4. Dusty says:

    Maybe you should interview her on about her recent revelations and how it is that she came to her new points of view.
    Ask questions like:
    -Do costs associated with a college education, such as tuition and text books, seem to go up with greater availability of student loans?
    -Given the federal laws against the discharge of student loan debt through bankruptcy and the marginal economic value of a college education, does it seem as though a majority of recent high school graduates might be better served not attending college or university?
    Might they be better off attempting to find work and only pursue post high school training that could be described as vocational?
    -Do you believe that the overwhelming majority of people who have already completed their pursuit of a bachelor’s degree, successfully or unsuccessfully, should feel that the US Government injured them?
    -What would you say is the driver or motivation behind the US Governments laws against the discharge of student loan debt through bankruptcy? Who benefits from these laws?
    -[conclude with] If you were not attractive, would anybody listen to you?

  5. Erik says:

    There only one way to wire a house , do it the other way, and it burns down , why does media waste are time with this blond girl , shes sings a song called, ” Im sleeping with a central banker ” “or Debt at any price”. they are distortion pundits

  6. anon says:

    Leave Diana alone!! She’s showing evidence that she has learned at least one useful thing outside of school… 😉

  7. Jim says:

    Solution to the problem: Make student loans dis-chargeable in bankruptcy. The students get out from under the debt, and banks won’t give out loans to people who won’t pay them back. Problem solved.

  8. CB says:

    This is hardly a debate — it’s just a reasonable belief contrasted with an unreasonable. Peter believes (wisely, imo) that Gov should stay out of price manipulation in the education industry, as the net loser is always the good, ‘normal’ folk just trying to do the right thing. Diana believes (with kool-aid, hopium, etc) that eventually Gov will finally achieve a hair-brained, half-baked policy objective without inadvertently harming people within even a single election cycle so that blame for failure can always be cast elsewhere when it’s time for rekoning. As long as people keep voting for “hope” this sh*t will continue. Love these modern Dark Ages. Good work, Peter.

  9. Seeds of Hope says:

    Super freaky… I can’t believe she actually believes what she’s touting. Maybe she can talk a little louder and interrupt more often and that will get Peter to change his mind. Good luck honey!

  10. James Blevins says:

    This woman has been brainwashed and when real economics finally prevails she will blame it on an act of god. I vote that her opinion is never given serious viewing again. She is obviously an Obama socialist that with the best of intentions will help drive our country into the ditch for decades. She should team up with the pope and hillary.

  11. john says:

    Typical progressive. Just let someone talk. Take notes if you want to respond to every comment and do it when it’s your turn to speak. Progressives are afraid to listen because their ideals would be shattered if they had to listen and understand common logic.

  12. john says:

    One more thing… everyone should have the opportunity to go to college… but opportunity needs to be earned. Nobody has the right to go to college.

  13. Benjamin F says:

    For the cost of a college degree most people could buy a small house in the country, start a small business, or begin an investment portfolio. However, the only loan an 18 year old can get is for a college degree. Reading Henry Hazlett’s Economics in one Lesson is a good way to understand how inefficient this strategy is.
    Today a college graduate is LUCKY to get a job paying 15/hr.
    In a world where banks and governments can essentially print money, capitalism means to get money you have to offer something to the people who control the banks or to the people who control the government. The banks want more of your stuff, the government wants to control more of your activity. To even the playing field, I think the government should print a new currency, legal tender for all debts public and private that has nothing to do with the federal reserve. I want 3 currencies. A Government Dollar and Federal Reserve Note which are naturally pegged to each other, and gold/silver. Every citizen should get a lump sum printed for them on their 18th birthday, this gives the citizen a little chance against the banks and the government and may even stimulate the economy.

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