(a paper I wrote in high school for my econ class)

One of the historical tenants of American Exceptionalism is equal opportunity. Different from equality of result, equal opportunity is predicated upon an even playing field that allows success to be awarded to the truly worthy. Education is a critical component for it empowers each individual regardless of gender, class or race.

President Lyndon B. Johnson extended this notion when in his tenure he initiated several educational reforms with landmark legislation. Specifically, he pioneered the system of student loans to reduce the gap between high performing and low income students and their more privileged counterparts. The system of student loans has since then developed through each presidency to the point that, as of April of 2013, the Federal Reserve Bank of Kansas City reports student loan debt to have skyrocketed from $346 billion in 2004 to $996 billion in 2012. The most alarming of these statistics is that the compounded interest has now reached the 13.7% level. Thus, it has become self-evident that this issue ought to be addressed by the US government by takings steps to phase out the Student loans program. This fact becomes even clearer once the Flat interest loan programs are analyzed in the context of the American economy.

On a purely theoretical level they provide a critical service to the students that need it most, but over the years this practice has weakened the core the US economy. Halah Touryalai from Forbes explains that “By 2012 the average U.S. student loan debt climbed to $27,253–a 58% increase in just seven years.” The National Association of Consumer Bankruptcy Attorneys reports in 2012 that “parent borrowing is up 75% since the 2005-2006 academic year with an average of $34,000 in student loans and that figure rises to about $50,000 over a standard 10-year repayment period.” These two are respectively the most optimistic and most pessimistic estimates on the average cost of a student loan. Either way, the situation is alarming as the problem is compounded since a failure to repay a lone permanently damages the individual’s credit score thus impacting the cost of mortgages and insurance. Specifically, the New York Federal Reserve explains that “The number of borrowers who are at least 90 days late on student loan payments has jumped from 8.5% in 2011 to 11.7% today.”

There is indeed a valid argument to be made in regards to the necessity of the federal government taking in high risk and losses to further the legitimate goal of empowering students to pursue higher education. Ironically however, government subsidized student loans have been at best ineffective. Jay Mathews from the Washington Post cited the College Board calculations that indicate that “The average college tuition, adjusted for inflation, has leaped 86 percent for public colleges and 52 percent for private colleges since the 1991–92 school years.” Thus, the more money is given out by the government the more college tuition rises thereby neutralizing any attempt at making college more affordable.

Furthermore, student loans are unnecessary for high-achieving low-income, for Ivy League and other top tier institutions offer comprehensive financial aid programs pursuant of their economic interest in attracting the top students regardless of income status. If one were to include the broad spectrum of private financial scholarships such as The Gates’ Millennium or Questbridge, it become clear that student loans are not given out to the high-performing students that cannot afford college on their own, since they do not it, but they instead end up in the hands of under-performing poor students that will default on their loans as soon as they graduate.

Not only are student loans harming the future of college graduates, but they also weaken the core of the US economy IE a stable value for the US dollar. Jason Richwine from the Heritage Foundation explains that “The government has applied a risk-appropriate discount rate to student loans based on what private lenders would offer for a similar level of risk. In contrast to the government’s current accounting practices found that between 2010 and 2020 the program would cost 12 percent more than it brought in.” Thus, the practice of student loans in its current state is unsustainable for even the Government Accountability Office itself admits that “In just ten years, from 1994 to 2004, the government spent $40 billion to subsidize the below-market interest rates on Stafford loans”.

The situation has gotten progressively worse since 2004. Douglas Elliot explains this in his book “Evaluating Federal Credit Programs” when he points out that “At its recent peak during the financial crisis, the government controlled programs to lend or guarantee almost $10 trillion to the private sector, roughly two-thirds of the size of America’s annual economic output. Even now, the total is over $7 trillion, approximately equal to the outstanding loans in the entire U.S. banking system.”

Last time the US insured toxic loans at a subprime rate it collapsed not just the US economy, but also the global economy. Last time the US irresponsibly guaranteed risky loans to those that would not be able to pay the American people lost their jobs, homes and chances to pursue the American dream. Last time the government put populist politics above fiscal discipline the mortgage crisis happened. It’s not a matter of making the hard choice; it’s a matter of making the right choice.