Federal Student Loans Drag Young People Down

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By: Julian Hassan

The architects of Sallie Mae and the financial crisis are trying to convince young people that there is such a thing as good debt: student loans.

Yet federal student loans are making young people more broke. They pull us down, not up. We graduate with few professional skills and are not productive enough to pay back the loans in a reasonable amount of time. And it is increasingly taking longer.

The Atlanta Journal-Constitution offers a solution:

The federal and state governments need to limit student loans and curtail funding at many universities—especially, liberal arts programs enrolling students from the second and third quartiles of high school graduating classes.

Austrian economics can explain this conundrum. For the vast majority of Americans, there is no such thing as good debt. Unless you have a very strong time preference, debt is bad and counterproductive.

The Austrian school defines “time preference” as the preference to spend, buy and consume goods in the present rather than the future. It’s the reason why debt and credit cards are marketable.

Many are willing to pay interest so that they can spend money now that they don’t have, with a future promise that they’ll create wealth and pay it back. The truth is that only businesses or entrepreneurs can really afford to take that risk, since they need fast capital to invest into production.

Who needs time preference? Only great wealth creators and very productive risk takers. The people that the Austrian school identifies as the movers and shakers of an economy.

It’s wrong to tell individuals, especially the young and inexperienced, that it’s good for them to get into debt and “Go to college NOW!” After all, “college” is just another consumer good, which we can have a time preference for. Most individuals do not need capital. They need a steady, livable cash flow that comes from employment, saving money and being out of debt.

At Campaign for Liberty Foundation, we support young people going to college. For most people though, taking on tens of thousands of dollars in debt for a college education doesn’t make sense—unless you’re about to become the founder of PayPal, the developer of Candy Crush, or the president of Apple.

Cutting federal college loans would be “doing the right thing” since there are no good loans for the majority of Americans who are trying to make ends-meet, and few will seek out private lenders in their absence. The result will be a richer, more prosperous society that is cautious of debt.

It will even lower the inflated costs of college, which in a distant, debt-free future will allow the smartest, most promising students, to graduate from college with little cost. Fixing the damage done to the market by the government will take decades. It’s better than mortgaging decades of time that most can’t make-up through a systematic culture of indebtedness.

Until then, you need help making college cheaper. If you’re a promising college student who needs help paying for one year of college, applications for the Ron Paul Scholarships will be available in early December.