Once Again: The Housing and Student Loan Bubbles Have the Same Origin

by George Leef

Peter J. Wallison of American Enterprise Institute has a good piece on AEI today, “Want to know why we are headed for a student loan crisis? Look at what caused the financial crisis.”

This is a point that cannot be over-stressed. We get bubbles — huge overexpansions of sectors that will later have to shrink with pain for many, when the government decides that political goals must be pursued no matter what the cost. Wallison writes, “The Fannie and Freddie story, and the high delinquency rates that are now plaguing student loans, spring from the same source — the government’s desire to spread credit widely, no matter what the risk, in order to achieve certain social purposes and to satisfy certain pressure groups.”

Wallison suggests that the government should get entirely out of housing finance and I suspect he would agree that the government ought to get out of student finance. Political intrusion almost guarantees a great deal of wasted resources and bad decisions.