I recently wrote an opinion piece for my History of Political Economy course (fantastic class, might I add) comparing the housing bubble of the early to mid-2000s to the current student loan bubble. I proposed that government policies had significant contributions to these bubbles. I recall combing through government data on student loans and wondering why the default rates weren’t higher. I presumed that the exorbitant costs of higher education coupled with stagnant wage growth and a shaky job market would result in a much higher default rate. That was the knockout punch my piece needed. News has recently surfaced that the government falsified data to make the default rate appear lower than it actually was.
According to the Wall Street Journal, the Department of Education inflated numbers at 99.8% of universities and trade schools. Analysis of the revised data showed that at 1,000 (about 25% of the total) institutions at least half of the students either defaulted or failed to pay down at least 1$ of their debt within seven (!) years. A spokeswoman from the Department of Education cited a clerical glitch as the root cause. I don’t think my skepticism towards that response is misplaced.
If my proposition of government interference accounting for a significant portion of the blame for the bubbles holds true, I think it would be best for the feds to ease off of their grip on the education market. Even the most well-intentioned policies can have adverse effects.
Here is the article from the WSJ: