This is a prime example of how government intervention, even with the best of intentions, can turn a good into a bad.

(Chart via @calvinfroedge)

The rise in the cost of tuition has dramatically outpaced the rise in wages and inflation. There’s one reason for that: government guarantee of student loans.

Universities know they can increase tuition without losing customers because the government will guarantee student loans no matter what. Remove the government from the picture, and universities will have no choice but to lower tuitions to a more affordable level.

This is not mere speculation on my part. See below for a study published by the NY Fed.

The study is titled “Credit Supply and the Rise in College Tuition: Evidence from the Expansion in Federal Student Aid Programs”.

https://www.newyorkfed.org/research/staff_reports/sr733.html

Here is the major finding of the paper:

“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.”