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Student Loans Following in the Footsteps of the Mortgage Crisis


Is a $938,250 loan really helping to keep higher education affordable?


Here is an email from Eugene Holloway, a Maryland attorney, on the rising cost of college education:

When I attended law school at George Washington University in 1969, the tuition was $1,900 a semester. I worked my way through and had no debts when I began to practice law.

Later, student loans became the norm. The loans were subsidized, encouraging students to become indebted rather than build sweat equity in themselves. Student loans also took parents off the hook for saving to pay for their childrens' education. The result was still more government dependency.

Screwing up the marketplace with subsidies, drove up the price of education, encouraged institutions to grow based on government support, and placed undue emphasis (economically) on higher and frequently useless education.

We should expect the higher education market to suffer a similar fate to the real-estate market, where subsidies, encouraging people to buy what they could not afford (and did not need) led them to a result that, when compared to their investment in time and treasure, was uneconomical.

Eugene Holloway

I spoke briefly with Holloway on the phone. He is from the Austrian economist school, and spoke of the "education malinvestment".

Over time, that's certainly what has happened. The cost of education has spiraled out of control with the cost of higher education far exceeding the payback unless one gets lucky in the jobs lotto process.

Many college graduates will be paying back student loans for 20 years or more. This is what happens when the government tries to make things affordable. The same thing happened with affordable housing.

Fannie Mae (FNM) / Freddie Mac (FRE) Mission

Has anyone even bothered to look up the mission statement of Fannie Mae?

We are a shareholder-owned company with a public mission. We exist to expand affordable housing and bring global capital to local communities in order to serve the US housing market.

Fannie Mae Limits

Fannie Mae exists to expand affordable housing.

Fannie now offers loans as high as $938,250.

By what stretch of the imagination is that affordable? That such loans are deemed necessary is proof that Fannie Mae has failed its core mission.

Fannie at least has a mission statement that one can understand. It failed, but the mission is clear. Compare and contrast to the Federal Student Aid Program.

Federal Student Aid Program's Mission

Organization and Core Mission

Federal Student Aid, an office of the US Department of Education, ensures that all eligible individuals benefit from federally funded or federally guaranteed financial assistance for education beyond high school. Located in Washington, DC, and 10 regional offices, its 1,000-person staff consistently champions the promise of postsecondary education and its value to American society.

Federal Student Aid was formed as a result of the 1998 Amendments to the Higher Education Act of 1965. To face the challenge of modernizing the delivery of student financial aid, this legislation named Federal Student Aid the government's first Performance-Based Organization (PBO).

Federal Student Aid's five core objectives are to integrate systems, to improve program integrity, to reduce program costs, to improve human capital management, and to improve products and services.

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