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Student Loan Crisis – Do You Really Understand it?

It’s that time of year again! Tuition season, or as I call it on my campus, that time of year where entitled teenagers complain about bills their parents pay for them, is upon us. The student loan crisis.

With tuition season came a hearing about what the government should be doing about the student loan crisis. Naturally, the testimonies being reposted on people’s Instagram stories to be trendy and woke were full of misinformation and falsehoods. 

Many of the so-called solutions I’ve seen proposed involve at least one of two main principles:

1) raising taxes to make public universities free and offer federal grants to pay private school tuitions, and

2) setting a national tuition cap so greedy private universities can’t continue raising tuition prices. 

Contrary to popular belief, the solution to rising college prices is the free market. Unsurprisingly to anyone who knows anything about economics, rising college costs are not the government’s to solve, in fact, the government is at fault for the rising costs. In these next few series of articles, I will explore a few economic concepts that explain how the government caused prices to increases, and highlight some free-market solutions.

The first problem with student loan crisis lies in supply and demand.

This is a pretty simple concept economic concept to grasp. On a graph, supply is upward sloping, meaning as prices increase, more companies are willing to sell a larger quantity of goods or services.

Conversely, demand is downward sloping, meaning as prices increase, fewer consumers are willing to buy a particular good or service. For a particular good or service in a market, the point at which supply and demand interest determines the market price. This is called the equilibrium point.

Changes in supply or demand, for any reason, will naturally shift the equilibrium point, directly impacting the student loan crisis. The demand for college education has shifted, which contributes to its rising price.

Young, impressionable minds buy into this myth, and grow up believing a college education is the only path to success, because this is what they’re told by the government and by their school teachers. The reality is, a college education is not necessary for everyone. However, since everyone of my generation and later has grown up believing college is absolutely necessary, the demand for a college education is artificially inflated.

Increased demand is easily accounted for in a free market, because more companies will enter the market and meet the increased demand because they seek profit. However, colleges don’t operate in a competitive “free” market, so the solution isn’t as simple.

Keep supply and demand in the back of your head for everything you do, because it’s going to be very important to understand this issue. Later this week, we’ll analyze some more advanced concepts that explain why colleges don’t operate in a regular market, and how certain free-market principles must be implemented to help reduce the cost of college. 

I welcome comments below. Be as controversial on student loan crisis as you please.

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Student Loan Crisis – Do You Really Understand it?

by Ryan Arranz time to read: 2 min