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I do not think that student loans explain much of the increase in college tuition. Student loan debt is a fairly recent phenomenom having quadrupled over the last decade. That means of course that a decade ago student loan debt was a quarter of what it is now. But college tuition has been rising much faster than inflation for at least 30 years, long before student loans were such a large part of the equation. Instead, it seems to me that tuition started to increase as the "good" jobs for high school graduates started to disappear. In any case, I think it is the perceived value of a college education (real or not) that is driving students' willingness to pay. Moreover, I think that people view price as a proxy for quality (perhaps incorrectly) which reduces the pressure on universities to lower tuition. But for the sake of argument, suppose the government student loan program were to disappear. I suspect that a lot of students/families would find other ways to fund college (private loans or other sources of self-funding) as long as they believed that college was worth the cost. In fact, I suspect the recent rise in student loan debt is partly a result of the decline in housing prices which has for many families eliminated home equity loans as a low-cost method for borrowing to pay for college. At least that is my experience.
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May 31, 2013