For a number of years now, a number of critics of the American system of higher education have rightly insisted that there is a “bubble” in the system, with more and more students running up loans in amounts they will find difficult to pay back. This bubble has been fueled by the federal government’s lavish subsidization of the student loan program (which was nationalized four years ago), in a way similar to how the housing bubble was fueled by government agencies pushing subprime mortgages.
This extensive government largess has produced a number of unintended — though not necessarily unforeseeable — negative consequences. First, it has dramatically driven up the tuition and fees charged by colleges, which in turn has forced more students to take out loans. This should have been easy to foresee, since the agents running the colleges would know that their clients had access to government-backed loans and so would jack up tuition quickly to extract that money.