Understanding cause (why something happened) and effect (what happened) is essential for getting by in life. This lesson is usually learned very young- after you touch the hot stove and burn your hand. Apparently, there is an entire segment in American society that never learned this lesson. The documentary, “Default: the Student Loan Documentary”, shows this on full display.
Causes:
1-Federal student loan guarantees of the 1960’s.
2-Federal government gives loans directly.
Effects:
Guess what happens when the federal government guarantees loans and than makes it illegal to discharge the debt? Lending institutions throw caution to the wind and begin lending money to any one with a pulse. More money is available for education. People bid up prices. The government funnels money into the education sector and inflates the prices.
Let me put this another way. The government sends everyone in America a $100. This $100 is special though. It has a distinct mark on it that allows the consumer to only buy apples. What do you think would happen to the price of apples? If you answered: “The price of apples would tend to rise”, than skip to the head of the class.
The effect is displayed in one chart.
The students in the documentary are clueless. They want more of the same. They spent $100K on a four year education and didn’t learn about cause and effect. The only lesson the students seemed to learn is how compounding interest works.