Peter Schiff: The Government Created the Student Loan Bubble

During a recent podcast, Peter Schiff talked about the student loan debacle.

In a nutshell, it’s the government’s fault.

Democratic presidential candidates have been talking about the student loan crisis. And it is indeed a crisis. The total of the outstanding student loans in the US has more than doubled since 2009 when it was $675 million. The rate of delinquency on student loan debt pushed up to 9.5% in the first quarter of 2019, even as total student loan debt climbed to $1.49 trillion. Currently American owe more than $1.5 trillion in student loan debt. That’s more than their outstanding credit card balances.

Democrats running for president have proposed government solutions, most involving forgiveness of most or all outstanding debt and making college “free.”

The problem with this solution is it will actually make the problem they want to solve worse. Or actually, it will create a bigger problem than the problem that they’re trying to solve. But the most ironic aspect of the whole thing is that the problem was created by government.”

Before the government got involved, college wasn’t all that expensive. It was government policy that made it unaffordable. And not only did it manage to dramatically drive up the cost of a college education, but it also succeeded in destroying the value of that degree.

Before the government tried to solve this ‘problem,’ it really didn’t exist.”

Peter isn’t just spouting rhetoric. Actual studies have shown the influx of government-backed student loan money into the university system is directly linked to the surging cost of a college education.

Peter traces the federal government getting involved in education back to the GI Bill passed in 1944. In the 1960s, the federal government began guaranteeing student loans. Before that, there wasn’t a big market for them.

The only reason that student loans exist is because of the government. Without the government, there were no student loans. I mean, who would loan money to a student? … They have no money; they have no collateral; they have no job. They’re a lousy credit risk. The free market is not going to loan money to students.”

But when the government effectively cosigned student loans, they became one of the least risky loans to make. It’s like loaning money to the federal government.

Obviously, all the banks wanted to make student loans because you couldn’t lose. All you could do was make money because there was an interest rate attached to the student loan. So, the government made a thriving industry of student loans. Without the government, it wouldn’t exist.”

Once colleges realized all of this money was coming their way, they recognized it was a money machine and they started raising tuition.

Because there was now no longer any kind of objection in the market because whatever the price was, the students just borrowed the money because the government was making all the loans available.”

Universities became bloated. They built new facilities. They began competing for students and their student loan money. Today we have dorms with granite countertops and Tempurpedic mattresses.

Meanwhile, well-meaning officials pushed the narrative that everybody needs to go to college. This increased the demand for a degree higher. And as economics 101 would predict, the cost continued to skyrocket.

The only thing we succeeded in doing by keeping kids in school to get a college degree is we simply delayed by maybe four, five, or six years, when they enter the workforce. So, those five or six years when they could have been earning money and developing skills on the job, instead they’re developing no skills and they’re racking up a huge debt.”

Peter cites a string of fascinating statistics to drive home his point.

This is a disaster. This entire problem never would have existed. Students wouldn’t have all this debt. College wouldn’t be so expensive but for government interference in the market.”

And now you have the very same people who caused the problem clamoring to solve it. That should go well…