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In the last decade more people have sought a college education and paid more for it. Tuition costs have skyrocketed and so has the amount of money students owe for college loans.

Mark Cuban, billionaire investor and entrepreneur, says rising student loan debt is crushing the U.S. economy, preventing recent graduates from buying the things that normally stimulate the economy. Cuban has offered a rather simple fix.

In an interview with CNBC this week, Cuban called for a cap on the amount of federally-guaranteed student loan money any individual can borrow in a year. With a loan cap, he argues, colleges will have no choice but to reduce tuition.

His comments this week were, in fact, a repeat of those made over the summer at a business conference sponsored by Inc. Magazine.

Educational arms race

Cuban's comments reflect many of the same views we uncovered when we reported on skyrocketing college costs back in 2007. At the time, economist Joel Naroff, of Naroff Economic Advisors, pointed to an educational arms race, with elite private schools pushing the tuition enveloping and public universities scrambling to catch up.

"There is very little pressure of any kind to keep costs down at private schools," Naroff told ConsumerAffairs at the time. "For most of the private schools, especially the better and elite schools, the more expensive it is, the more elite it is, and the more having a degree from that school is a perceived value."

Cuban is now saying that the U.S. government can end this arms race – and perhaps help the U.S. economy – by reducing the money flow to higher education. He suggests limiting the amount of student loan debt to $10,000 per student per year.

Easy money

The current system, he argues, has created an “easy money” mentality among college administrators, who don't always use the money wisely, or in ways that benefit the economy. He uses the example of a college “building a better fitness center” to attract students.

Because there is plenty of money coming in – through higher tuition paid for with student loans – spending just increases, and so does tuition, in a classic inflationary spiral.

Anytime you create easy money, you're gonna create a bubble or inflation and that's what's happening with college tuition,” Cuban said.

Regulators are concerned

Cuban isn't the only one worried about surging college loan balances, though not everyone may agree with his prescription. The Consumer Financial Protection Bureau (CFPB) first raised the alarm when student loan balances went over the $1 trillion mark in 2013. The total has only risen since then and is currently north of $1.2 trillion.

CFPB has launched a “Know Before You Owe” program to educated students about the dangers of too much student loan debt before they take it on.


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