The Side Effect of College Loans and Grants

Sometimes good intentions can lead to unintended bad consequences. In economics terms this is called a side effect. For example, letting college students apply for student loans and pell grants. The good intention here is to help college students pay (especially ones who can't afford it at the time) for tuition and books. The side effect is the value of a college education is lowered especially to potential employers. Why? Because employers know that students can get loans to pay for their college expenses. The bigger the loan the lower the economic value of the education. It's all about scarcity. If a resource people want is plentiful (ie not scarce) then its value goes down. Before student loans people who wanted to go to college had to pay for college expenses out of their own pocket, hence a college education was scarce. Anyone with a college degree was in high demand. Now the inverse is true. It is almost expected by job seekers to have a college degree for good paying jobs that are scarce. Since hiring market is flooded with people with college degrees (because of student loans) employers have their pick of applicants. Those who don't have a degree are really left out.

Unless the potential employer knows you, all (s)he knows about you is from your resume and your cover letter. If (s)he sees you have a college degree (s)he might automatically assume you got a student loan to pay for your expenses. Even if you paid for your expenses out of your own pocket--that employer does not know it. All (s)he knows is that student loans exists and most people will apply for them. I suppose you could say you paid your own way in your cover letter and somehow prove that in your job interview by showing receipts, but you still have to get the interview to do that.

Getting a grant or loan is not good or bad in of itself. It helps pay for the college expenses so you can better your career. But we forget or don't know what the side effects are if we don't understand the basic economic principle of scarcity.