I this comes out of the flawed meme of private enterprise efficient/gov't inefficient. Thought it's true in some areas, in the area of funding education in society, it's terrible.
The loans push money to unsophisticated buyers (kids and their parents), who use it to make a huge amorphous transaction which is only performed once in their lives and plays out over years. There's insufficient buyer information to provide price discrimination for the asset being purchased - so it's just inflating college prices.
On the other hand, if we took the same amount of money and goverments directly funded public schools - there's a lot of attention over time and many transactions that can be administered by a gov't department to provide funding discrimination and control over the quality of what is provided. (BTW this is how many low cost public schools were funded in the boomer generation... at least in California)
Edit: BTW, Does any reader here know of any interesting economic theory on how to predict if a market will act efficiently? I'm imagining there must be some way to model the structure of a given market with information, quality and quantity of transactions between nodes representing persons/companies/institutions in a market.
That strategy seems to work for Year 1, but what happens when (a) universities expand to cover this newly created demand, thus requiring larger budgets, (b) people enroll only to find out that the classes they are interested in are full?
"When it comes to college, the central challenge for most Americans in the 21st century is not going; it’s finishing. Thirty-five million Americans now have some college experience but no degree. More Americans than live in Texas, in other words, have spent enough time at college to glimpse the promised land—but not enough to reap the financial bounty. Some are worse off than if they’d never enrolled at all, carrying tens of thousands of dollars in debt, not to mention the scar tissue of regret and self-doubt.
President Obama’s recent proposal to have the federal government and states pay for two years of community college is elegantly simple, and would surely prompt more students to enroll. But community college is already close to free for most low-income students, and still only 4 percent of all community-college students earn a two-year degree in two years. (Yes, 4 percent.) Money is just part of the problem."
Community colleges are, in many places, already straining at their capacity. I know a large number of people that I graduated high school with who got sort of bait-and-switched by the local community colleges - they enrolled in a program, then it turned out that there weren't enough slots in that program, so the community college said, "Here, take your core classes this semester, we'll fit you in next time." Then next semester, the classes they needed to take the previous time aren't offered, so they do more useless "core" classes.
Maybe the second year they get into some of their original program courses, but now they are slated for at least a third year, because they can't take their 2nd year fall courses (in their 2nd year), before they take the 1st year fall and spring courses they got squeezed out of.
I think with that proposal that you're rerouting the money for two years, but keep the same fundamental economic problem of buyers trying to be efficient at selecting what asset to purchase when they only do it a very few times in their life.
Let's put it this way: I give to $5 to go buy a coffee for (and or some other drink if you're not a coffee drinker) - chances are you'll decent value on that cup of coffee. Now, I give you $5M and say go buy a yacht. And oh, no longer than a three hour tour and you have to live on the yacht for the next thirty years... What are the chances that you'll get good value on that yacht? And if the yacht industry is flooded with buyers in your position - what is the chance that the industry will be particularly efficient at providing value to their customers?
The loans push money to unsophisticated buyers (kids and their parents), who use it to make a huge amorphous transaction which is only performed once in their lives and plays out over years. There's insufficient buyer information to provide price discrimination for the asset being purchased - so it's just inflating college prices.
On the other hand, if we took the same amount of money and goverments directly funded public schools - there's a lot of attention over time and many transactions that can be administered by a gov't department to provide funding discrimination and control over the quality of what is provided. (BTW this is how many low cost public schools were funded in the boomer generation... at least in California)
Edit: BTW, Does any reader here know of any interesting economic theory on how to predict if a market will act efficiently? I'm imagining there must be some way to model the structure of a given market with information, quality and quantity of transactions between nodes representing persons/companies/institutions in a market.