Why Do We Have Student Loans?

Release Date
July 12, 2017



Student loans skyrocketed from the 1980s to the 2007 recession. Dr. Domitrovic says this is a bubble that needs to pop. For notifications of new Learn Liberty videos, click the bell above.

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Brian Domitrovich: Student loans. I guess we’ve had them all these years. Well actually not. I mean, if you go back to as recently as the 1970’s and 1960’s, student loans were essentially unheard of. The great Baby Boom generation that started entering college in 1965. There’s huge, millions of young people. They all went to college without taking out loans. It’s hard to believe.
Now, student loans only really started in earnest in the United States about the mid 1980’s. Then they really took off through the 2000’s. The question is, well why do we have student loans and what’s going on here? It’s very interesting to realize that that’s when student loans really got going, in the mid ’80’s and then they started growing into the 1990’s and then past the year 2000, into their huge scope that we’ve been dealing with today. That was in lag against the trajectory of economic growth. The United States economy was in the doldrums in the 1970’s. The stagflation era of high unemployment, low economic growth, and high price inflation. Well after all that calmed down and you had tax cuts and a return to sound monetary and regulatory policy in the 1980’s, the economy just took off. Incredible economic growth, 4% per year for long stretches. Really for the whole decades of the 1980’s and 1990’s.
That’s when everyone started to recover the idea that we’re going to have a great economic future. Well geez. There are 40 million new jobs in two decades. Of course, my career’s going to turn out great. That’s when people started saying, “It’s okay if I take out a loan for college because my career is going to turn out great.” Then it started cascading and cascading and cascading. It took the peak of the economy in the year 2007 or 2008, for people to start to realize, “Hey, maybe the economy isn’t going to improve forever. We have a great recession.” That’s when we had the student loan crisis. Student loans lagged economic growth. Once economic growth came in, people started saying it’s okay if we take out loans.
Now what I have perceived today is that student loans are starting to peak. You see the rise of online education. Whatever you say about technology, the main reason that we have lots of students taking online classes these days is that they have decided to take jobs from nine in the morning to five o’clock in the afternoon because they’re saying, “I can’t take out those loans anymore.” That’s really what is driving online education today. That’s a perfectly healthy development. We need to see the student loan bubble popped.
In the future, what is most likely to happen is that this process will accelerate. That more and more people will strike against student loans in saying, “I simply cannot do it.” Take courses online. Come up with some other solution. Maybe even not go to college, but pursue alternative educational ventures. You start to see even now, the student loan aggregates sink and sink and sink.
The other thing we’re likely to see as this development ensues is not so much the full flowering of the so-called STEM fields, science, technology, engineering and mathematics, crucial as they are, but the rise if academia can handle it, once again of things like the English and history major. Because what business tells us today is that however difficult it is to hire technologically competent workers, it is most difficult to hire truly literate workers — workers who can actually write. That means they’re looking for the kind of skills that are taught by the traditional liberal arts faculties. The amazing this is, is that liberal arts faculties, supremely English departments in the United States, are such a nest of post modernists, they have no idea how to meet this incredible demand for students who are really literate. A great area of reform in academia coming up over the next few years is for the liberal arts faculties to figure out how to accept the real latent demand there is in higher education, so that we have a wonderful workforce of literate workers into the 21st century, who are good not only at writing, but at technology, as well.