Here’s another story for the “Peter Schiff was right” archive and another testament to just how clueless mainstream economists can be.

Three years ago, it was already becoming clear that ballooning student debt defaults were becoming a major problem. CNBC reported that the loan “industry underestimated defaults by a whopping $225 billion.” We wrote earlier this week about the latest White House data revealing just how much worse the defaults have become.

In the summer of 2012, Peter appeared on CNBC to debate why the federal government should get out of the student loan business. Diana Carew, an economist with the Progressive Policy Institute (PPI), appeared alongside Peter to defend the need for federal college funding.

You can watch the video below, in which Carew counters Peter’s economic arguments with straw men, suggesting that Peter wants to “get to decide who goes to college.” Carew used the same emotional rhetoric employed by politicians:

Investment in human capital is never a waste of money. Of everything the government can spend its money on – entitlement programs, subsidizing the housing sector – human capital should never be sacrificed.”

They both agreed that college degrees are no longer worth as much as they cost, but they disagreed on the root cause. Peter adamantly insisted that colleges are “basing their prices on the fact that students can borrow money with government guarantees.”

Carew literally rolled her eyes. “I don’t think colleges are setting prices based on how much students can take out of the bank… I’m well aware of basic economics. Thank you.”

Fast forward exactly three years. The Federal Reserve Bank of New York published a research paper this July entitled, “Credit Supply and the Rise in College Tuition: Evidence from the Expansion in Federal Student Aid Programs”. Its major conclusion: