For many of the 43 million
Americans weighed down by student
loan debt, making their monthly
payments is a major drag
on their lives.
About a third of undergraduates
going for a VA are either dropping
out or taking more than six years to
graduate.
Which means that lots of people
carrying student debt don't even
have a degree.
Others are finding that what they
learned in college doesn't even help
them get a job.
Federal student loan debt hit $1.6
trillion last year.
This is a major problem for people
in their twenties and thirties, but
the federal government simply wiping
their debt clean is just about
the stupidest way to address
it. When Bernie Sanders was
running for president, he promised
that he would forgive student loan
debt altogether, which would mean
printing more than
$1,000,000,000,000, thus driving
up inflation and bringing the
federal government even closer to
insolvency.
President Biden has said that he
wants to forgive $10,000
per borrower, but in the meantime,
he's been using his executive
authority to whittle away at the
debt load, including a recent
$85 billion expansion
of loan forgiveness programs.
What Biden is doing is kind of like
if you had a clogged sink that's
flooding your apartment.
But instead of turning off the
faucet or clearing the drain,
you grabbed a coffee mug and just
dumped the water onto the floor.
And while your house keeps flooding,
you tell yourself that maybe you
just need a bigger cup.
Loan forgiveness programs are
incredibly unfair.
One time cancelation not only screws
over taxpayers and those who've
already worked for years to
successfully pay off their loans.
But it also leaves out the
generation of college students about
to graduate into thousands of
dollars in debt.
Biden has suggested expanding a
program that forgives the loans of
people who work in public service.
While this may sound like a noble
idea, the beneficiaries include
some extremely high paid
professionals working at nonprofit
hospitals, like cardiologist
who make $400,000 a year
on average.
Public service workers often have
the best job security, health care
and pension benefits among middle
class workers, making them strange
candidates for debt forgiveness.
Why should students worry about
staggering loan balances if the
government is just going to cancel
the debt anyway. It only discourages
them from taking a more prudent path
like attending affordable community
colleges before enrolling in a four
year university or going to a
trade school that arm students with
practical skills that lead to high
paying in-demand jobs.
If colleges notice that high tuition
is scaring off would be students.
They'd have to lower their prices.
The way to fix and overflowing sink
is to turn off the faucet or unclog
the drain.
In other words, you go to the root
of the problem.
We shouldn't focus our efforts on
the debt that results from expensive
college, but on the expensive
college itself.
There are substantial empirical
evidence showing that cheap federal
loans are actually a major cause
of the rise in college tuition,
which has outpaced the growing cost
of even medical care and housing.
This theory was famously argued in
the 1987 New York Times
op ed by then Secretary of Education
William Bennett, who wrote that
"Increases in financial aid
in recent years have enabled
colleges and universities blithely
to raise their tuitions, confident
that federal loan subsidies would
help cushion the increase.
When you give people more money to
pay for something, prices tend to
go up, and forgiving debt makes
the problem worse.
Students don't care as much if
college administrators overcharge
for their services because they'll
probably never have to pay it back
anyway.
There are several ways we can
incentivize colleges to reduce their
prices and encourage students to
take educational paths that maximize
a return on their investment.
For starters, we need to reduce the
size of the federal student loan
program over time so that
schools can no longer take for
granted that applicants will be able
to pay for tuition no matter what.
The best way to forgive student loan
debt is through personal bankruptcy.
Student loans are currently the only
kind of debt that cannot be
discharged this way.
Bankruptcy is a system that ensures
that only those in dire straits get
debt forgiveness while at the same
time forcing them to bear a penalty
because it makes future creditors
wary of loaning to them.
Similarly, forgiving federal student
debt, on the other hand, means
forcing us to bail out other people
for their bad decisions while
rewarding the very institutions
that have been ripping us off in the
first place.