Three things the country needs to do about student loans

Discussions about canceling student loans are always hot. Given modern reality, it should be possible to understand why so many with unpaid student debt think it should be erased. Too much debt in society is erased, mostly for the better off, either through explicit forgiveness, mechanisms to reduce pain, or convenient forgetfulness.

For example, Mediaite yesterday published an article about a fox

co-host who once went wild for the Senate in New York. The headline: “Jeanine Pirro, whose campaign owed $600,000 in unpaid bills for more than a decade, demands that student borrowers pay their bills.

Brutal but not quite accurate. Going to the Federal Election Commission page for his campaign and scrolling down to the cash summary, the cash available to his committee was $6,857. Debts or loans (and there was only one loan of $265,000 from the candidate herself) listed as still owing: $854,194. Worse than history suggests. Perhaps her advice would be more effective if she had paid what she owed.

Moreover, while students are pushing for an end to their loans, most are paying, unlike some political candidates of yore. Of the 40 million Americans who have student debt, up to a quarter are overdue or in default, meaning 75% are paying as they should.

But the burden is so heavy because the country’s approach to funding higher education is unbalanced. There are three steps that could make student debt much more rational and reasonable.

Reduce loan rates retroactively

The burden of university spending has clearly become unsustainable compared to what it once was. The College Investor website has done a cost and loan analysis. In 1976, the cost of tuition, adjusted for inflation in 2021 dollars, was $2,607. In 2021, it was $10,560, or about four times as much.

The absolute cost is higher, especially considering that all other costs, such as room, board, books and fees, are also going to be higher now than in the past. So even though the loan rates are similar, the amount owed is much higher. Step one, retroactively cut rates as was done for banks and highly skilled borrowers for about 15 years after the Great Recession. Then recalculate what has been paid and what remains to be paid.

The country immediately reduces the burden of people it presumably needs the education of, otherwise why help subsidize post-secondary education in the first place? If that sounds too generous, given that there are millions of people who can and do manage their student debt, then make it means-tested.

Make student debt eligible for bankruptcy

Many students make a lot of mistakes when wondering if they are ready for college or what major might be best. If you can afford a Ph.D. in an obscure branch of art history, no problem, even when you realize that there will be no job waiting for you. College should be more than an expensive trade school.

But eventually you will have to work if you are not an offspring of wealth. Maybe earning multiple advanced degrees in one field will work for you. Or maybe you’ll accumulate too much debt to realistically wipe out.

This is not the ideal approach, but if it happens, then give these former students the chance that the wealthy and corporations can regularly take, ie bankruptcy court. Reverse what was done wrong years ago when student debt was exempt from bankruptcy. This could reduce some private lending, as institutions would have to consider risk more than knowing that someone could never get out of a giant thumb. If a Donald Trump can have his companies declared bankrupt six times over and leave millions in charge of everything sold or loaned to them and his own shareholders, it is reasonable that individuals have access to much more low and the probability that they won no need for a revolving door.

Asking states to resume a reasonable degree of school support

Years ago, when people complained about having to pay taxes, state government officials decided that one way to get rid of the electorate was to cut broad government spending, like money for state universities.

We want people to go to university and be responsible for the money they borrow. There’s nothing inherently wrong with that. It is good for people to pay back the money they have borrowed and not indulge in the moral hazard of assuming that there is always someone to bail them out. But rising college costs aren’t just a matter of too many on-campus elevator amenities. It’s that there are significant amounts of money that need to be spent and that states have cut support so much that students and their families are crushed.

It is time to spread the costs because all of society benefits from a better educated population. Let’s raise the stakes and make education affordable again in public institutions. Privateers will likely find ways to follow.

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