In his weekly radio address President Obama tried to engage with the student loans problem. He urged the lawmakers to pass a bill for limiting the interest rates of college loans. This is nothing else than a temporary patch in a serious case that inevitably will lead to a financial explosion. College loans are one of the most dangerous bubbles that will explode one day. It is not sure if this will be the next burst or any other of the bubbles will be before it. But no way of not exploding when millions of young men owe hundreds of thousands dollars each, with no jobs for them. We are in a paradox situation the one without diploma to be better than the one with diploma, because both are unemployed, but the uneducated owes nothing... :)

The US university education system has crashed. With skyrocketed fees for education it creates not better workers but bigger debtors. The most funny element of this system is that it creates debtors with diplomas with no jobs. Americans do not study for engineers that are needed on job-market. They study specialties that are more "prestigious" and not real-job-oriented. China with its state-backed university system produces more engineers. There are guaranteed jobs for them and they have no loans to pay... So whose educational system is better - the one that produces workless debtors or the one that produces debtless real workers?

The new proposition of Obama shows the total misunderstanding of the problem. The problem is in the government system of loans. And every new patch is consumed by the system. If Obama lowers the interest this can lead to bigger indebting. The student calculates not the entire loan, but the monthly payment on it. Lower interest can mean lower payment. This can motivate students to take bigger loans.

The entire lending system is mistaken. If a student has to pay by his own money, he would not spend so much. In past students could pay for education by working in free time. Not this is impossible. The government loans bonanza flooded the system with money and this increased the university-fees. So now the only way to study is to take a loan. A loan that you will not be able to repay.

Guaranteeing low interests is a patch that addresses a current problem, but will create future problems. Just like the generous government-backed lending has created the current bubble. The strategy must be changed, not the tactics. May be some European or Chinese experience in government involvement in university education will be very useful. It is clear that China and EU produce good specialists with less loans. So may be their system is better...

Dobri
April 22nd 2012