1) The Omnibus bill passed in 1993, but from the graph tuition was already increasing at 200% greater than inflation, and appears to have started in the mid 1980's; and
2) Why would the fact that the loans are now from the government mean that universities no longer had to compete on costs? The bill ultimately goes to the student in either case.
I think an economist would say that the loans increase the number of "customers" who could now afford to go to college. Accordingly, when the demand increases faster than the supply, an economist would say increases prices are the result. There's an old op-ed by former Education Secretary William Bennett that gave rise to the "Bennett Hypothesis", where he said,
"If anything, increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase … Federal student aid policies do not cause college price inflation, but there is little doubt that they help make it possible."
However, I've casually seen a bit of research that refutes this claim and instead states the primary driver of tuition increases is reduced public funding.
Student loans are cheaper than cheap, they are government subsidized and not even close to their appropriate cost.
Interest rates on government-subsidized college loans aren't that cheap. Undergraduate loans are the cheapest. They were particularly cheap in the early 2010s and during the COVID pandemic. But over the past 20 years the rate has been ~4-5%, and generally greater than mortgage rates.[1][2][3] Subsidized graduate loans are in 6-7% territory (even 8+%), and always have been. Unsurprisingly, AFAIU the latter constitute a substantially disproportionate share of student debt--including, especially, debt that people are unable to climb out of due to compounding--relative to the number of students.
[1] https://studentaid.gov/understand-aid/types/loans/interest-r... [2] https://educationdata.org/average-student-loan-interest-rate [3] https://fred.stlouisfed.org/series/MORTGAGE30US
Mortgages are secured by a real asset. You stop paying the mortgage, the bank gets the house.
Student loans are unsecured.
Cheap capital lowers the prices of all non-monopoly goods. Monthly payments on your mortgage are lower which reduces the cost of housing, it becomes cheaper to produce food or anything that can be produced in arbitrary quantities. It is only the monopolies that go up in price because they offer rent seeking revenue which is a direct result of their monopoly nature and actually distorts the market. Higher stock prices mean it becomes advantageous to start your own company.
Just trying to understand your perspective, but this is based on an existing mortgage, correct? What does it do for the price of a new mortgage? I was under the impression that cheap capital tends to inflate home prices.
The theory is that anytime you subsidize anything, you tend to increase consumption of it. Increased consumption tends to increase price. It's unclear to me that is always the case in practice, but that's my layman's understanding.
Because 17 years old student taking out the loan is not financially experienced, so the issue of cost is often not properly considered.
Maybe what you're trying to say is that the private lenders vetted their loans better than the government does. And that might be true, but nothing in the article backs it up. In addition, note that even before the Omnibus bill, the government still insured the loans. So private lenders had basically no risk, and hence no incentive to deny a loan.
I'd assume universities didn't just take a decade to realize the implications of a 1993 law change.
What, you don't like pre hoc ergo propter hoc argument?