EDITORIAL: The next bubble?

The rising cost of higher education is a crisis, but in more ways than you might think. Yes, ever-higher tuition bills price many students out of a university education. But increasing college costs also compel students to take out ever-higher amounts of taxpayer-backed student loans. And, as Jason Delisle pointed out in a Wednesday Wall Street Journal op-ed, an ever-higher number of those loans will never be fully repaid.

Mr. Delisle, director of the Federal Education Budget Project, reports that growing numbers of borrowers are participating in programs that delay loan payments or reduce them to the point that they fail to cover interest charges. Income-based repayment plans also are more popular because low-income borrowers don’t have to make payments at all. Despite these programs, which ensure that borrowers fail to reduce their principal owed, about 20 percent of loans are in default.

Despite the fact that taxpayers already stand behind more than $1 trillion in student loan debt, and more and more borrowers aren’t repaying their debt, loan dollars keep pouring into colleges regardless of the job prospects of certain degree programs. Colleges, which benefit from being paid up front, respond with additional tuition increases. Taxpayers, meanwhile, provide borrowers with invisible bailouts.

Where is the return on investment for the public when students borrow to pay for tuition but can’t get a job that allows them to repay the loans? The federal loan and higher education systems need an overhaul before this bubble bursts.