Market Inconsistencies (OR Where markets fear to tread)

June 3, 2008

Another story from Marketplace caught my attention. Apparently (and this really isn’t a surprise), banks are hesitant (at best) or unwilling (at worst) to offer student loans.

Nancy Marshall Genzer: Since the latest credit crunch, banks have been re-evaluating risk. The latest group to be hit by this are students at community colleges and technical schools.

[…]

Statistically, students at these schools are more likely to default.

[…]

You can get a student loan directly from the government, but those loans are limited — enough to pay the tuition at a community college, but not much else.

So, here we are, with an economy in the toilet, global competition for skilled work growing by the day, with Presidential candidates promising “green” jobs which will (I imagine) require a more skilled workforce. Yet, there doesn’t appear to be a path from here to there. We’ve relied on private banks to provide loans to students, trusting in the wonders of the free market, which has worked well, when the economy is doing OK, or at least, when credit was easy to obtain.

But now the credit market has imploded and taken the economy with it. Now, some out of work people who want to return to school to obtain newer/better/more applicable skills can’t, because they can’t get a loan. Or high school graduates hoping to prepare for career, or just get the degree everyone says they need to get a good job, can’t afford college, because some rich guys on Wall Street decided to play fast and loose with “collateralized debt obligations.”

If our society’s success is based on a continually growing economy, shouldn’t we be investing in the success of the future workers in that economy? Shouldn’t we be willing to pay to provide everyone access to quality education at all levels? Maybe post-secondary education will always require loans, but shouldn’t we be willing to protect the availability of those loans from market vagaries?

I do wonder, sometimes, if these sorts of free market failures will open our eyes a bit, and help us realize that, as Sen. Obama says “we’re all in this together.” And I hope that realization makes us more willing to embrace things like Universal Health Care and Universal Pre-K.

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