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> the government does not succeed if students are stuck in debt forever. Therefore when government gives the loans, incentives are aligned and lending goes down.

That's a double edged sword. Yeah, the government doesn't have the profit motive that predatory lenders do, but they also lack the incentive to say no to students who are borrowing money to study things that won't do much to help them pay it back. Politicians don't get re-elected on a platform of "let's reduce student loan amounts" or "let's give less money to students who are studying subjects that won't help them earn much". And the bureaucrats running the program don't have the power or the incentive to impose discipline here either.

In a system of loans directly from the government, there is still some mild disincentive against lending to people that won't pay it back, even if it is tempered against some other incentives. What's more, a government body certainly can and surely would limit total loan amounts for affordability reasons.

More to the point, the comparison here is against regular private lenders, but instead against private lenders with government guarantees. Those have no disincentive whatsoever to avoid people who can't pay money back or to limit the loan amount. In fact they have a very strong positive incentive: there's a guaranteed profit on every loan and it's proportional to loan amount. What's more, if you cap the loan amount then the "customer" might use a competitor with a higher cap, so you lose the whole of the loan.

> What's more, a government body certainly can and surely would limit total loan amounts for affordability reasons.

Interesting in this regard - the macro picture shows that the majority of the USA’s assets are these loans. Let’s hope they can all pay us back!

I believe private lenders require cosigners or else proof of income. I don't see how they can win here. You'd have them discriminate in giving loans based on some kind of lifetime prediction of someone's earnings? I'm sure that would go over well.

Schools need to be the adults in the room, since they getting most of the money after all. And that will only be motivated by having them take the financial hit if students default.

In fact if private lenders enjoyed the guarantees, i can imagine them sponsoring entire schools with full easy-button applications and admissions just to take advantage of the lending profits. Anything to push volume.

On that basis you might as well limit university education exclusively to hedge fund management.

It pays better than anything else, so what's the problem?

Never mind that some stupid math problem that only fifty people in the world ever cared about led to the creation of both crypto and computing.

So presumably it would have been "discipline" to have Turing flipping burgers instead of going to college, because most administrators, voters, and politicians had no clue what he was doing, and fewer people cared.

This is why we shouldn't make student loans justify themselves economically.

In fact we shouldn't have student loans at all. Because it's really hard to make multi-decade predictions about which areas of interest will be financially viable - as anyone doing a CS degree today will discover in the next ten years or so.

If the private loans are guaranteed, what incentive do the private lenders have? That's my point.

> If they had, you might have doubted their claim that this is the reason that college costs $50+k/yr.

I think of this more as a capacity problem. Let's say every student has the capacity to pay for ~15k in schooling. If you have ~15k in spending power you can almost always find someone who will lend to you at around 2x your spending power. Because of this you can probably find someone to give you 30k on top. After that the government gives you an extra 5K of deferred loans.

Suppose people couldn't get that last $5k from the government. No one in the country could come up with the money. Would colleges close down?

If they wouldn't close down, and they would instead make adjustments to their pricing, then you can reasonably say that the government involvement here is making SOME change to the market effects.

We might argue here about numbers and percents but it's pretty evident: if your consumer base has a higher purchasing power you can extract more money from them. There's a load of MacOS devs that make a living selling $10 utils that can attest to this.

> c) TFA neglects to mention that you can take out up to $5500-7500 in government loans per year as an undergrad. https://studentaid.gov/understand-aid/types/loans/subsidized....

Your own source says $5,500-$12,500, not $5,500-$7,500.

I get a 404 on that studentaid.gov link

It's truncated (see the trailing dots). I assume they meant https://studentaid.gov/understand-aid/types/loans/subsidized...

The high end is for students who are "independent", i.e. not with their parents (or similar). This is a tiny minority -- they make it very hard to declare independence.

> The high end is for students who are "independent",

Or dependent students whose parents are unable to get a PLUS loan. And for dependent students whose parents are able to get a PLUS loan, you have to add the PLUS loan to the available federal financing. And how much is the maximum PLUS loan? “Maximum Loan Amount: Your child's cost of attendance minus other financial aid.” https://www.govloans.gov/loans/direct-plus-loans

So, the amount available for independent students or dependent students with no parent PLUS loan isn't the maximum loan amount available, it's the minimum. The maximum federal loan amount available, including PLUS loans to parents, is “cost of attendance minus any other financial aid”.

That's why they didn’t talk about a $5,500-$7,500 cap in federal loans.

Also - what about the agency of students (and their parents) when deciding which school to attend and whether or not they can afford the loan? This article makes it sound as if it's purely the amount the lender is will to loan that determines the market price, but I would imagine the amount the student is willing to borrow must also play a pretty significant part.

> Its incentives are aligned

Not with the students. Students generally don't vote and don't contribute to political campaigns.