This piece by Megan McArdle is required reading.
The role of government in causing the college bubble cannot be gainsaid.
On my view, government is practically necessary. Anarchism is for adolescents. Some of what government does is good, some bad. Governments in the free world defeated the Nazis; communist governments murdered 100 million in the 20th century. (Source: Black Book of Communism.) Some of what is bad are unintended consequences of programs that were set up with good intentions. Federally-insured student loans made it possible (or at least easier) for many of us to finance our educations. (It is of course a debatable point whether it is a legitimate function of government to insure student loans.) But lack of oversight on the part of the Feds, and the greediness of university administrators coupled with the laziness and prodigality of too many students has led to the education bubble.
What has happened is truly disgusting. The price of higher education has skyrocketed, increasing out of all proportion to general inflation, while the quality of the product delivered has plummeted in some fields and merely declined in others. There are young people graduating from law schools today with $150 K in debt and little prospect of a job sufficiently remunerative to discharge the debt in a reasonable time. For the painful details, see Paul Campos' law school scam blog.
Can we blame the federal government for the education bubble? Of course, if there had been no federally-insured loan program the bubble would not have come about. But there was no necessity that the program issue in a bubble. So we are brought back to the real root of the problem, human beings, their ignorance, greed, prodigality, and general lack of moral and intellectual virtue.
Compare the housing bubble. Government must bear some of the blame through its bad legislation. But no bubble would have occurred if consumers weren't stupid and lazy and greedy. What sort of
fool signs up for a negative amortization loan? Am I blaming the victim? Of course. Blaming the victim is, within limits and in some cases, a perfectly reasonable and indeed morally necessary thing to do. If you are complicit in your own being ripped-off through your own self-induced intellectual and moral defectiveness, then you must hold yourself and be held by others partially responsible. And then there are the morally corrupt lenders themselves who exploited the stupidity, laziness, greediness and general lack of moral and intellectual virtue of the consumers. A fourth factor is the
corruption of the rating agencies.