thehappycon
Tonight I’m feeling frisky, and I’m going to say something inflammatory and dreadfully unpopular.
We need fewer need-based scholarships. In fact, we need to do away with need-based aid. All of it.
Here’s why:
In life, you’re paid for two things: intellect and effort. Effort will get you to one hundred thousand dollars. Brains make you a millionaire.
Most people pay for college on their own; usually by taking out loans with the expectation that the loans will be repaid with the income gains that accrue from the degree. If I buy a tractor, I do so with a ration belief that the tractor will make at least enough money to cover the opportunity cost of the capital. The same logic applies with loans for school. Good risks should get better rates, because they can be expected to put forth the requisite effort to recoup the tuition cost with interest.
Bad risks should pay higher rates, to discourage them from over investing in tractors, or years of college.
The current system fails in two ways:
- It makes it cheaper to go to college. This leads people to overinvest in education, leaving them with too much education and saddling them with loans they will never repay. In effect, by giving them cheaper college we’re setting them up for failure. Without the subsidy, they would not choose college. They do not see the benefit; they’re probably right. Who is the government to disagree?
- People who cannot acquire loans are bad risks for a reason. Usually, it’s too little effort. If there is a positive externality associated with a college education (after all, that is why we subsidize them, right?), then isn’t there a negative spillover associated with a bunch of lazy people who rack up hundreds of thousands of dollars of debt and then fail to recoup the cost of the degree?
Subsidies change incentives. By giving people an incentive to go to school, we’re pushing them in a direction they wouldn’t go otherwise. If they thought it was worth it, they’d pay the loan like most students do. If it’s not worth it, we’re setting them up for failure.
Down with need-based aid. Too many people go to college.
Filed under: Uncategorized | Tagged: aid, College, Education, need-based aid, school funding, student loans
