Tuesday the Washington Post’s Catherine Rampell examined Americans’ faith in the wisdom of investing in real estate — particularly their own houses — and offered a heretical thought: “If nothing else, the recent financial crisis should have taught us that it’s not in the country’s best interest to enable every aspiring homeowner to buy.”
Rampell’s seemingly commonsense statement offers dramatic ramifications for the role of the federal government. If, because of the huge unintended consequences that attend it, it’s not in the country’s best interest to enable every aspiring American to buy a home . . . how many other areas of modern American life feature the government “enabling” people — read, distributing money — to pursue dreams that are not, in fact, in the country’s best interest?
Is it really in the country’s best interest to enable every aspiring college student to attend college? Right now the federal government is in the business of loaning money to young people to attend college, only to watch significant numbers — 600,000 or so last year — fail to pay the money back. College students are defaulting on federal loans at the highest rate in nearly two decades, with one in ten defaulting on their loans in the first two years. This is not merely one late check; to meet the Department of Education’s definition of default, a borrower’s loan must be delinquent for 270 days — nine months.
The college gets its money, the taxpayer loses theirs, and the deadbeat student can be left with all kinds of frustrating consequences
— seized tax refunds, garnished paychecks or benefits, or a lawsuit. (Though the deadbeat student is often in this situation because their college education failed to prepare them to find a job in a mediocre-at-best economy and make a living, so there may not be much money in their wages to garnish.)
How many of those students really should go to college? If college is supposed to represent some sort of advanced or more demanding level of education, why has it become a national priority to send every kid to college? Wouldn’t the nation be better off if at some point it said to these young people, “you can go to college if you want, but we’re not paying for it”?
Or, to take another example: Is it really in the country’s best interest to enable every aspiring small businessman to open a small business? There’s mounting evidence that the federal Small Business Administration needs to get a lot pickier in determing which businesses they loan money:
Lax federal oversight allowed lenders to repeatedly make bad loans to small businesses under a government program that has cost taxpayers $1.3 billion since 2000 on defaulted loans, a Dayton Daily News investigation found.
Since the beginning of 1990, lenders made more than 1 million loans guaranteed under the SBA’s 7(a) program, the agency’s largest, according to a Dayton Daily News analysis of SBA loan data. Excluding the 280,948 loans that are still active, more than 1 in 5 of the remaining 769,242 loans were discharged to the U.S. Treasury after they defaulted and the lender and SBA were unable to collect the money owed.
Some franchises generated jaw-dropping default rates: The SBA made 90 loans to Petland franchisees; 55 percent defaulted. The agency made 18 loans made to Partylandfranchisees; 61 percent defaulted. Of the 17 loans made to Wings-N-Things franchisees, all except one defaulted — a 94 percent default rate.