Phillipi27
09-08-2012, 04:06 PM
Hey guys, currently live in Canada where our province just instituted a program where there is no more interest payments on student loans. Being of the Austrian school economic theory I imagine this government intervention will have bad economic consequences similar to the housing bubble. However I can't find much literature on this subject and was wondering if anybody knew of a video or an essay or had some arguments they could post. Here are some of the ones I have:
1.) By lowering interest rates of loans below the natural rate of interest the government is increasing demand for loans therefore raising the price. If the government let interest rates rise university would have to figure out how to lower costs so as to induce students to go to their university.
2.) By financing all degrees from arts to math to business and engineering the government is misallocating the supply of degrees that would be naturally available. In the free market investors might realize there is no benefit to financing a liberal arts degree and therefore would either refuse to do so or charge a high rate of interest. But since the government backs all loans why not issue the loan. Hence we have a misallocation in what students should be studying and hence an oversupply of liberal degrees and not enough engineers.
3.) No interest rates discourage savings, encourage debt which will lead to another bubble when students are unable to pay and government gets stuck with a huge bill.
I would really like to hear some ideas as to how this action that seems good now will actually cause problems for the students it is supposed to help. I also like the argument that taxing me to pay for somebody else degree is theft but this is Canada where socialism is King so I do not think they are ready for that yet.
1.) By lowering interest rates of loans below the natural rate of interest the government is increasing demand for loans therefore raising the price. If the government let interest rates rise university would have to figure out how to lower costs so as to induce students to go to their university.
2.) By financing all degrees from arts to math to business and engineering the government is misallocating the supply of degrees that would be naturally available. In the free market investors might realize there is no benefit to financing a liberal arts degree and therefore would either refuse to do so or charge a high rate of interest. But since the government backs all loans why not issue the loan. Hence we have a misallocation in what students should be studying and hence an oversupply of liberal degrees and not enough engineers.
3.) No interest rates discourage savings, encourage debt which will lead to another bubble when students are unable to pay and government gets stuck with a huge bill.
I would really like to hear some ideas as to how this action that seems good now will actually cause problems for the students it is supposed to help. I also like the argument that taxing me to pay for somebody else degree is theft but this is Canada where socialism is King so I do not think they are ready for that yet.