Time to scale back unlimited federal student loans

Imagine a bank willing to lend any amount of money to anybody regardless of an applicant’s income or credit history. Such a financial institution would be hemorrhaging cash faster than a problem gambler at Del Mar.

Welcome to Washington, D.C., and the federal government’s student loan program.

On Monday, the Trump administration announced it will push for limits on how much money graduate students and parents of undergrads may borrow from the federal government to pay for college.

It’s an effort to address two major issues: the soaring price of college and the financial burdens imposed on students and families who have accumulated too much student loan debt.

As to the latter, national student loan debt has now surpassed

$1.5 trillion. The average Nevada college student amasses $12,500 in debt, according to The Student Loan Report. Default rates are soaring nationally — and because the Obama administration essentially nationalized the student loan industry, U.S. taxpayers may soon be forced to pick up the tab. In essence, the government — in a well-intentioned effort to make higher education more “accessible” — is loaning billions of dollars to people without any assurance they will ever be able to repay the money.

In addition, numerous studies have drawn a link between exploding tuition costs and the easy money available through federal student loans. Mark J. Warshawsky, a former senior research fellow at George Washington University’s Mercatus Center, noted in 2017 that a paper from economists with the Federal Reserve Bank of New York concluded that “increasing loan and grant programs has largely resulted in corresponding tuition increases, with little net benefit to students and seemingly small increases in enrollment.”

In other words, making billions of taxpayer subsidies available to those attending college encourages schools to raise the cost of tuition without significantly juicing enrollment or expanding opportunities for lower-income students. It’s a lose-lose.

Democrats, however, immediately pounced on the Trump plan. Sen. Patty Murray, D-wash., called it “a feeble attempt” that ignores “the root cause” of increasing student debt: college costs that “are rising exponentially.”

Well … no. It’s Sen. Murray who has buried her head in the sand, ignoring the obvious relationship between regular tuition hikes and the availability of unlimited taxpayer funding.

The federal government would be much better off serving as a lender of last resort, allowing private financial institutions to pick up the bulk of the student loan market. But the Trump plan is a modest effort to control costs — for both students and the taxpayers — and deserves support.