College Tuition Is Finally Dropping, and It Proves Everything I Said About Government Subsidies

The Moment I’ve Been Waiting For

I have to be honest with you. When I read that small private colleges and liberal arts schools are cutting their tuition bills by $20,000 or more to boost enrollment, I started laughing. Not because it’s funny, but because this is the most predictable outcome in the history of predictable outcomes. I have been saying this for years on this program.

So what changed? Simple. They put a cap on the amount students can borrow to attend college. And the moment that happened, tuition started falling. Amazing how the free market works when you actually let it function.

Student Loans Were Never Really Loans

Here is what I want people to understand about student loans. They are not real loans in the traditional sense of the word. A real loan is priced based on risk. A real loan can be discharged in bankruptcy if everything falls apart. A real loan carries an interest rate that reflects the creditworthiness of the borrower.

Student loans have none of those characteristics. Consider the facts:

• You cannot discharge student loans in bankruptcy under virtually any circumstance
• The interest rate is artificially suppressed, nowhere near what the open market would demand
• The government essentially backstops the entire system, removing all risk from the lender

That is not a loan. That is a subsidy. And when you subsidize something, you guarantee that the price of that thing will increase. Every. Single. Time.

If student loans were priced the way a truly non-recourse unsecured loan should be priced, you would be looking at interest rates comparable to credit cards, somewhere in the range of 18 to 20 percent. At those rates, almost nobody would take them out. And if nobody took them out, colleges and universities would have been forced decades ago to charge what the actual market could bear.

What Should Have Happened All Along

My position has been consistent and it is simple. Government has no business in the student loan game. Government has no business subsidizing a college education. A degree is a product. It should be priced like a product, subject to the same supply and demand forces that govern every other product in a functioning economy.

When you force colleges to compete for students on price, here is what happens:

• Tuition comes down to reflect actual market value
• Programs that cannot attract paying students get eliminated
• Institutions that cannot sustain themselves on real revenue close their doors
• Students make more rational decisions about whether a $200,000 degree in a low-earning field is actually worth it

Yes, Some Colleges Will Close. That Is Fine.

I know some people will clutch their pearls at the idea of colleges going out of business. But that is exactly how a free market is supposed to operate. Businesses that cannot sustain themselves on what customers are willing to voluntarily pay do not deserve to survive on the backs of taxpayers and debt-burdened students.

Think about this principle across every sector the government has touched with the promise of making things more affordable. Healthcare. Housing. Higher education. The pattern is identical every time. The government steps in, declares it will make something cheaper, and the price of that thing skyrockets. It has never once worked the other way.

What we are seeing with tuition cuts right now is the beginning of what should have been happening for the last forty years. It is painful. Some institutions will not survive. But real market correction always involves some pain, and the alternative is continuing to saddle young Americans with debt loads that distort their financial futures before their careers even begin.

We are finally heading in the right direction. And it only took removing a subsidy to get there.