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The Student Loan Racket: Ron Paul Right Again by Tom Woods

The Student Loan Racket: Ron Paul Right Again

Ron Paul was asked about student loan programs, which have made debt slaves out of countless kids, in his excellent interview on Meet the Press. Here’s an excerpt from Rollback, my book from earlier this year, that amplifies his points:

We know all about the easy-money policies that lured people into crushing amounts of mortgage debt, but we hear less about how those same policies have encouraged impossible amounts of debt related to higher education, for undergraduates and graduate students alike – especially in the wake of the financial crisis, when the job picture for these students is so bleak. (Many of them have indeed found employment, to be sure, but not quite the jobs they were looking for.)


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The Education Bubble

In the advent of the worst financial crisis seen in decades, there is much to be learned. Many economists agree that creating false demand will eventually create a bubble and crush a market much faster than the natural economic cycle. Take for instance the student loan market. Student loans, subsidized and unsubsidized, allow an 18-year-old to finance some or all of the next four years of his or her life, including living expenses. Morally, is it right to allow our children to start their lives immersed in debt?

In 1992, Congress increased the amount of money a student can borrow from the federal loan program with the reauthorization of the Higher Education Act. The act also enabled students defined as "in need" easier access to funding. Now we see student loans dominating the higher-education industry and accounting for 50% of all financial-aid packages.

According to FinAid.org, the average range of tuition inflation is normally 8% annually, and prices have not fallen or stabilized once since 1977, regardless of economic climate. In 2004, the Census Bureau released a report saying private university and college tuition are "up 93 percent from 1990." This symptom may be attributed to cheap and accessible money, and it is becoming an issue now because tuition is still rising but wages have been flat for a decade.

An MP3 audio file of this article, read by Steven Ng, is available for download at:


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College finance bubble

Also note that alot of money from housing re-fies came into the colleges from the baby boomers to pay for their kids education. Maybe the college bubble is about to pop.

Bob Brinker slams Dr. Paul yet again

On his weekend radio show (MoneyTalk) Brinker again slams Dr. Paul by saying that the young people in OWS's mistake is that they must not be sidetracked into listening to Ron Paul and criticizing Ben Bernanke and the federal reserve. He claimed Dr. Paul's senseless call to end the fed would turn the US into a "banana republic". According to him no anger should be directed at Bernanke and the FED and that the bailouts were necessary etc. etc. He framed his comments while saying how corrupt the politicians in government are which to the average sheeple then made his comments on Bernanke and the fed seems credible.
Alot of people listen to this shill for financial advice.
I wish Tom Woods or even Dr. Paul would take this clown to task. Whenever regular callers try to question his views on the fed he gets quite testy and condescending before cutting them off.


The gov was subsidizing school loans to anyone. Colleges would skyrocket their tuition prices because all the students were getting loans without any risk to Sallie Mae and other gov cronies. The students should be able to claim student loans in bankruptcies which will hurt their credit rating as punishment. The DEBT HAS TO BE LIQUIDATED.


Woods nails it every time in easy to understand terms.

"For having lived long, I have experienced many instances of being obliged, by better information or fuller consideration, to change opinions, even on important subjects, which I once thought right but found to be otherwise." - Benjamin Franklin

Thanks Tom

Thanks Tom for always covering Ron Paul's back.

It is better to look dumb and not be, than to look smart and not be.



Ellen Brown
October 20, 2011

Among the demands of the Wall Street protesters is student debt forgiveness—a debt “jubilee.” Occupy Philly has a “Student Loan Jubilee Working Group,” and other groups are studying the issue. Commentators say debt forgiveness is impossible. Who would foot the bill? But there is one deep pocket that could pull it off—the Federal Reserve. In its first quantitative easing program (QE1), the Fed removed $1.3 trillion in toxic assets from the books of Wall Street banks. For QE4, it could remove $1 trillion in toxic debt from the backs of millions of students.

The economy would only be the better for it, as was shown by the G.I. Bill, which provided virtually-free higher education for returning veterans, along with low-interest loans for housing and business. The G.I. Bill had a sevenfold return. It was one of the best investments Congress ever made.

There are arguments against a complete student debt write-off, including that it would reward private universities that are already charging too much, and it would unfairly exclude other forms of debt from relief. But the point here is that it could be done, and it (or some similar form of consumer “jubilee”) would represent a significant stimulus to the economy.

Toxic Student Debt: The Next “Black Swan”?


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Q4 Forgive The Students = Screw The Working Stiffs

so once again the taxpaying public picks up the tab..

Another Obama transfer of debt to us..

That S.O.B. needs to go yesterday!!

Forgive the students?

HELLO? You want the American People to pay for the debts of students? You want the young adults who didnt get to go to college to pay for those who did? Never mind that this is wrong, what about the MANY students that didnt apply themselves - they get a bailout too? Nice.

How does this thinking make any sense?

Who isn't for Liberty?

I agree. Although I think

I agree. Although I think the point they're making is akin to what Ron Paul said the other day (I think in the debates). He said he doesn't approve of bailouts of any kind, but that if you were going to bail out someone, it should be the people, not the business (in other words, give the bailout money to those losing their house instead of Fannie and Freddie). Here his principle would apply -- give the money to the students instead of SallieMae. However, it should be CLEAR that Ron Paul was not supporting bailouts. They are harmful and immoral. If the Fed insists on a QE4, better it go to people than to corporatists. Let's hope there's no more QE. Prices are going up.

tasmlab's picture

Legalize student default

A bailout is really for the banks, not just the students. If the students could legally default, then it sticks it to the banks who made a poor lending decision (albeit, they made those decisions thinking they had a government guarantee)

The students would have a craptastic credit score for a decade, but then the students are culpable in this mess too.

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Givng money to students so they can give it to the Banksters...

... is the worst possible idea. That will simply re-enforce the whole process and cost tax payers dearly.

Of the two, allowing student-debt bankruptcy is the better option by far. However, that is still really bad.

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If you haven't seen the Money

If you haven't seen the Money as Debt video, you should google it. Basically, when a student takes out a loan, they are creating currency. They create the currency today, and it enters our economy. This is okay, however, because they balance the creation of currency with their promise to create worth over the next 15 years spent working to pay that debt back. So it's important to see that the debt creates money, but it doesn't harm the economy (much) because they are going to create worth, in the form of their work, to give value to match that created currency. If, however, their debt is forgiven, then they will have created currency without having to create worth to match it. There's no way to destroy that currency, as it will have been spent many times over by the time the borrower defaults. The end result of debt forgiveness is inflation, wich shifts the burden onto everyone else.

This also illustrates the problem with fractional reserve banking. It takes the risk of making loans, and puts it on the shoulders of all of society, while the profit of making the loans goes to the bankers, and ultimately the federal reserve.

Freedom Wins!

Any Bailout would be pure moral hazard

I have to agree with Dave on this. The moral hazard will only encourage banks and students into even more reckless behavior in the future. And while we will be told it is being done to help the poor students, it would be intended to bailout the banks that face another wave of default on top of mortgage and credit cards. The devil will save others to save himself as they say.

Legally, I'm not sure the government can lift it's guarantee from loans already made. It would likely be vulnerable to bank lawsuits.

Best we could do is end future guarantees. If nothing is done, then the bubble will eventually burst by itself. It will become obvious that a college degree is not necessarily a route to a better life, but much more likely a lifetime of debt slavery.

Also, regardless of what the law is, if students don't have the money to pay, they will default.

“Necessity is the plea for every infringement of human freedom. It is the argument of tyrants; it is the creed of slaves.” William Pitt