MSG Team's other articles

9229 Evaluating the Effectiveness of Sports Sponsorships

In the previous article, we have already seen how multinational companies spend large sums of money in order to buy the rights to be associated with a large sporting event. Companies are willing to provide these resources since they feel that they will be able to meet their corporate objectives. Sports sponsorships are purely commercial […]

12006 Why Pension Funds Should Not be Allowed to Invest in Equity?

Traditionally, pension funds were averse to equity investments. However, over the years, pension funds have been steadily pouring money into pension funds. This has been facilitated by the lower interest rates offered on fixed income securities as well as the rise in the value of stocks and other risky assets. Nowadays, most experts believe that […]

10365 Misconceptions about Personal Finance

The importance of financial planning at an individual and family level cannot be overstated. For years, people and even governments have been trying to inculcate this habit into the masses. However, they have found it difficult to do so. This is because there are several misconceptions related to personal finance, which are common among people. […]

9101 Elasticity of Taxes

In the previous article, we have studied the concepts of the tax base and tax rate individually. Now, it is time to see how the two react. We already know the basics to some extent. We know that the tax base and the tax rate move in opposite directions. Hence, ideally, if we increase the […]

9389 Framing Bias

Traditional economic theory assumes that investors are completely rational beings. Hence, they react to information in the same way if the content of the information is the same. However, behavioral finance theory seems to disagree with this assumption. According to them, investors interpret information in different ways if it is presented to them differently. This […]

Search with tags

  • No tags available.

President Ronald Raegan had once famously said that “Big government is not the solution to the problem. In fact, big government is the problem?” This line is remarkably applicable to the current situation surrounding the student debt crisis. The student debt crisis in the United States has reached epic proportions. The total loans outstanding are worth trillions of dollars. More than 10% of these loans are in default even though the interest rates are at historical lows. If the interest rates are raised, many more of these loans will turn bad. Hence, it would be fair to say that student loans pose a systemic debt crisis in the United States.

Education has been the backbone of the American economy for many years. The reality is that it shouldn’t be so expensive in the first place. The costs of education have shot up ever since the government started interfering with the financing of student loans. Unlike any other loan, students do not have to show means of repayment when they are given a loan. Therefore, there is practically no way to ensure that the loan will be paid back in the future.

Government policies have made it mandatory to give out loans to pretty much every student that asks for it. This is the reason that many young adults, who have no idea about the kind of financial burden that they are taking on sign away their lives every year. Many young and old adults are struggling with piling student loans now. This is the reason that these loans have become a political agenda.

Once again, instead of solving the problem at its root cause, the government is suggesting ways and means of making college education free. Such a move would not solve the problem but instead, exacerbate it. In this article, we will have a closer look at the policy options which are being flouted to make college education free to understand why these policies are flawed:

Waiver of Tuition Fees and Debt Forgiveness

The most popular policy being proposed is the complete waiver of tuition fees in America. Given the fact that University education is already expensive, this would cost the American taxpayer a lot of money.

Democratic senators have also proposed that $50,000 be waived off from every outstanding college loan in the United States. This extremely generous policy is likely to cost the American taxpayer $1.6 trillion per year! The problem with this policy is that firstly, it will send the American debt through the roof.

Secondly, this policy will not solve the root cause. An abundance of money has made university education expensive. Instead of rationing the money that is given out to the universities, the government is proposing an unlimited supply of money to the same universities.

If this policy is followed, the costs of university education will balloon over the next few years bankrupting hard-working taxpayers in the process.

Taxes on Wall Street

The government loves to play Robin Hood since that helps with building a positive image which has obvious political benefits. There are many senators who say that the proposal of giving away free education will be revenue-neutral. They say that the money for these loans will be provided by a tax which is imposed on the speculative activity on Wall Street.

Such policies play to the popular perception that people on Wall Street have an excess of money, and hence money should be taken away from them. The reality is that each and every taxpayer, even the poor ones, invest money on Wall Street.

The money in the 401(k)’s and retirement accounts is plowed back into Wall Street. Hence, if a tax is imposed on Wall Street transactions, it is still being paid by a lot of poor and middle-class personnel.

Also, Wall Street does not keep all the money to itself. Instead, Wall Street is only a mechanism to transfer money from the savers to the investors. Therefore, if a tax is imposed on this process, the number of investments will be curtailed. A fewer number of companies will get funded, and the job creation process will be impacted. Once again, this will further exacerbate the problem instead of solving it.

Reversal of Tax Cuts

Another proposal being suggested by democrats is that the tax cuts being provided after the 2017 act by Donald Trump be reversed. Once again, this would be a problem for the middle class. The middle class was the recipients of tax breaks as well as pay hikes because of the tax breaks being received by the companies.

If these tax cuts are rolled back, many middle-class families will bear the brunt. The problem with this policy is that it forces all people to make an involuntary contribution to benefit only a handful of people. Many of these taxpayers have not been able to attend college themselves. However, the government is forcing them to pay so that other people can attend college. This is obviously hypocritical and ironical.

The reality is that college education is not meant to be free. Instead, it is supposed to be reasonably priced so that middle-class people can afford it. Also, colleges should have endowments wherein merit-based students can also have access to the same educational institutions.

The goal of reasonably priced education can be met with minimum government intervention. The idea of throwing money at the education problem to make it go away has obviously failed and hence must be discarded.

Article Written by

MSG Team

An insightful writer passionate about sharing expertise, trends, and tips, dedicated to inspiring and informing readers through engaging and thoughtful content.

Leave a reply

Your email address will not be published. Required fields are marked *

Related Articles

Cash vs. Accrual Basis of Accounting

MSG Team

Objectives of Accounting

MSG Team