Student loan debt in the U.S. is expected to top $1 trillion this year with more than 9 percent in default. This is in large part due to the nationalization of the student loan industry. Easy credit with low interest rates subsidized by taxpayers has driven up demand for higher education, driving up tuition costs in the process.
Government loans are not based on merit and the number of dropouts carrying mountains of debt is high. Additionally, all degree programs are treated equally without regard to their likelihood of resulting in a good-paying job — or any job at all.
These factors are pushing default rates higher, and a bailout of the student loan system will cost taxpayers billions of dollars.
Student lending should be privatized to restore fiscal stability. If the lenders have a direct stake in the success of a student they will be more selective, funding those more likely to graduate, get a decent job, and pay off the loan. Increased selectivity will decrease the credit supply, decreasing demand for higher education, and reducing tuition costs.
Additionally, taxpayers will no longer be on the hook for economic activity they chose not to participate in.