0:00 - 0:02 Think that bailouts are over?

0:02 - 0:05 Think again -- with the Feds now controlling the entire student loan market

0:05 - 0:08 taxpayers may soon be up on the hook for unpaid loans.

0:08 - 0:09 Check this out:

0:09 - 0:12 Barclays is warning that we may see a tsunami

0:12 - 0:17 of student loan defaults through 2020, saying that the industry underestimated defaults by a whopping

0:17 - 0:19 $225 Billion dollars

0:19 - 0:23 Euro Pacific's Peter Schiff says that the government should never have gotten into this sector

0:23 - 0:24 in the first place.

0:24 - 0:27 Diana Carew, of the Progressive Policy Institute,

0:27 - 0:31 says that the government has to be involved; high school is not enough in this day and age.

0:31 - 0:33 Peter, good to have you on the program,

0:33 - 0:34 Diana, thank you for joining us.

0:34 - 0:36 Why is this a bad idea, Peter?

0:36 - 0:40 Well, just like the government inflated housing bubble, the reason that tuitions

0:40 - 0:44 are so high is because government guarantees the loans

0:44 - 0:48 and now students take these guarantees and bid tuitions through the roof.

0:48 - 0:52 Take government out of the equation, and the colleges and universities

0:52 - 0:55 have to lower tuitions so students can afford to go;

0:55 - 0:59 but the beneficiaries of these high tuitions are not the students,

0:59 - 1:02 they get stuck with the debt. It's the colleges and universities that can

1:02 - 1:07 sell overpriced degrees, and unfortunately right now we've got a lot of people

1:07 - 1:12 with college degrees waiting tables, cleaning toilets, you know, driving taxis,

1:12 - 1:15 and they have enormous government debt to pay back

1:15 - 1:17 out of these small salaries that they earn.

1:17 - 1:20 -That's a good point. Diana, you're saying that

1:20 - 1:22 the government has to be involved -- why?

1:22 - 1:26 - Because investment in human capital is never a waste of money.

1:26 - 1:28 Of all the things the government can spend their money on:

1:28 - 1:32 entitlement programs, subsidizing the housing sector,

1:32 - 1:34 human capital should never be sacrificed.

1:34 - 1:37 And I completely agree that college graduates today,

1:37 - 1:40 especially young college graduates, have been hard hit by the recession,

1:40 - 1:43 a recession they never predicted, and it's not fair

1:43 - 1:46 to ask them to shoulder the burden alone.

1:46 - 1:50 They have seen their wages fall by 15% in real terms over the last decade.

1:50 - 1:55 Meanwhile, their debt has risen 25%, and it's completely unacceptable

1:55 - 1:59 to suggest that every college student does not have the right to go to school.

1:59 - 2:02 They should all have the opportunity to pursue an education.

2:02 - 2:04 - Well, you know, look at these numbers:

2:04 - 2:08 Barclay's warning that we're going to see a tsunami of student loan defaults by 2020,

2:08 - 2:11 so how has the government been positive here?

2:11 - 2:15 - I think the government has a clear role to play here in the long term.

2:15 - 2:17 I mean, look, we need to realize

2:17 - 2:21 and as soon as we all agree that education is a social good we'll all be better off.

2:21 - 2:24 We need to invest in our future, we need to invest

2:24 - 2:26 in the economy, and right now the economy is the big problem -

2:26 - 2:30 There aren't enough jobs being created for college grads,

2:30 - 2:34 especially on college grads, so they are driving buses, they are hair stylists,

2:34 - 2:38 and that's the big problem - because they're taking - they're squeezing, essentially,

2:38 - 2:42 young, non-college grads out of those jobs and then they're taking

2:42 - 2:45 a pay cut that can't pay for their debt, and so the problem is

2:45 - 2:48 having a low growth economy.

2:48 - 2:54 The only way out of this is to educate kids and get them jobs into jobs that are better paid.

2:54 - 2:58 - Let me get a word in here, because wasting money, overpaying for worthless degrees

2:58 - 3:02 is not going to help the economy - in fact, it hurts the economy.

3:02 - 3:04 - No degree is worthless, you're always acquiring skills --

3:04 - 3:05 - No, no...

3:05 - 3:09 - it's whether or not the jobs are there that you can utilize those skills.

3:09 - 3:13 - A lot of the curriculum, a lot of the courses, do very little to improve human capital.

3:13 - 3:17 Look, plenty of people went to college before the government got involved.

3:17 - 3:19 It just didn't cost nearly as much.

3:19 - 3:22 People didn't graduate college with a mortgage. Now they do --

3:22 - 3:27 - I don't think colleges are setting prices based on how much students can take out of pay.

3:27 - 3:30 - Of course - no, of course they're basing their prices on the fact that

3:30 - 3:33 students can borrow money with government guarantees.

3:33 - 3:34 If the government got out of the market -

3:34 - 3:36 - I think there's more to it than that.

3:36 - 3:37 - No there isn't. That's exactly the problem.

3:37 - 3:38 - I disagree.

3:38 - 3:41 - If the government got out of the market, students couldn't borrow money so cheaply,

3:41 - 3:45 interest rates would rise, and students wouldn't be able to bid up prices.

3:45 - 3:48 - Great, so then you get to decide who gets to go to college,

3:48 - 3:50 and so only rich students get to go to college -

3:50 - 3:52 -No!

3:52 - 3:53 -That's a very good message to send.

3:53 - 3:56 - It's not up to the government to pay for everybody's college degree --

3:56 - 3:58 and you don't have a right to go to college,

3:58 - 4:00 I mean, people should go to college, A) -

4:00 - 4:03 - I think everybody should have the opportunity to go to college

4:03 - 4:05 and I don't think you should decide who gets to go to college

4:05 - 4:06 and who gets to have that opportunity.

4:06 - 4:10 Yeah, but by subsidizing it they create this huge bubble -

4:10 - 4:12 do you think students are really better off?

4:12 - 4:14 I've had plenty of students on my radio show;

4:14 - 4:17 the biggest regret in their life is that they went to college.

4:17 - 4:19 Because now they're stuck with an enormous debt

4:19 - 4:21 I had one young woman on my show -

4:21 - 4:22 -- They're stuck with a low innovation economy

4:22 - 4:24 that's not creating the right type of jobs.

4:24 - 4:26 -- The reason they're not creating the jobs is that

4:26 - 4:30 government is diverting all the capital to education, and it's not going to businesses.

4:30 - 4:32 -- Of all the things the government spending money on,

4:32 - 4:35 I hardly would suggest that human capital - I would be

4:35 - 4:37 hard pressed to find somebody that would suggest

4:37 - 4:39 that investing in college education is a bad investment.

4:39 - 4:43 -- You found me. It's a lousy investment. We are squandering our wealth.

4:43 - 4:45 -- It's never a lousy investment. And when that's the case

4:45 - 4:47 then we got a real problem on our hands,

4:47 - 4:49 because the only way forward, the only way to invest in our future

4:49 - 4:52 is through education. That is the way to growth.

4:52 - 4:54 -- Not everybody needs a college degree.

4:54 - 4:57 What you're doing is playing into the universities -

4:57 - 4:59 -- I'm not saying everybody needs a college degree

4:59 - 5:00 -- They want to exploit our kids.

5:00 - 5:01 -- but anybody who wants to go to college should get to go to college.

5:01 - 5:03 They should have that opportunity.

5:03 - 5:05 -- They can have that opportunity without the government.

5:05 - 5:08 -- Who's paying for it? I mean, who's paying for it? I mean, our taxpayers,

5:08 - 5:10 once again, on the hook here.

5:10 - 5:14 -- Like with other things, like with entitlement programs, like with the housing sector,

5:14 - 5:17 of all the things the taxpayer would be on the hook for,

5:17 - 5:21 I would argue that education is probably one of the least controversial.

5:21 - 5:24 -- Oh, it is very controversial, and you know, because of the government

5:24 - 5:28 a college degree is not worth the price that you pay for it.

5:28 - 5:32 Not only in the cost, but the five or six years that -

5:32 - 5:34 -- and I agree, that's a big problem -

5:34 - 5:35 -- that you're not in the labor force.

5:35 - 5:37 But if we simply got the government out of education,

5:37 - 5:42 college tuitions would plunge. Colleges would be forced to compete -

5:42 - 5:43 -- I do not agree with that.

5:43 - 5:44 Well, that's basic economics.

5:46 - 5:49 -- I'm well aware of basic economics, thank you.

5:49 - 5:51 -- Well, apparently, you're not.

5:51 - 5:52 -- Yes I am, thank you.

5:52 - 5:55 But I would argue that there's a lot more variables at play

5:55 - 5:58 how colleges prices its tuition as opposed to -

5:58 - 6:00 -- Prices are determined by supply and demand.

6:00 - 6:04 If you take away the demand, by taking away the guaranteed loans

6:04 - 6:06 colleges will have to stop building these fancy

6:06 - 6:10 gymnasiums, and these fancy off campus housings,

6:10 - 6:14 or these big restaurants, they'll have to cut prices.

6:14 - 6:16 They'll have to cut the pay of some of their administrators and bureaucrats -

6:16 - 6:17 -- They'll have to cut their faculty,

6:17 - 6:18 -- Yeah!

6:18 - 6:19 -- They'll have to cut their technology,

6:19 - 6:20 -- No!

6:20 - 6:21 -- They'll have to cut their investment,

6:21 - 6:22 -- No they won't!

6:22 - 6:22 -- Absolutely.

6:22 - 6:23 -- No no!

6:23 - 6:24 -- Yes, they will.

6:24 - 6:25 -- The technology will probably increase.

6:25 - 6:29 Look, in the 1950s students got great educations

6:29 - 6:31 in college, and it didn't cost anything.

6:31 - 6:33 Kids used to work their way through college

6:33 - 6:36 and they graduated debt free with degrees -

6:36 - 6:38 -- And there were jobs for them.

6:38 - 6:38 -- I know, and -

6:38 - 6:41 -- We're going agree to disagree, but these are all very, very good points.

6:41 - 6:42 Thank you so much.

6:42 - 6:47 Peter and Diana, great conversation - thanks you so much for laying it all out for us.