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The discussions about student loan forgiveness are still running hot. Given modern reality, it should be possible to understand why so many who have outstanding student debt think it should be erased. Too much debt in society is wiped away, mostly for the better situated, either through explicit forgiveness, mechanisms to reduce the pain, or convenient forgetfulness.
As an example, Mediaite yesterday ran a piece about a Fox FOXA cohost who once rant for the Senate in New York. The headline: “Jeanine Pirro, Whose Campaign Owed $600,000 in Unpaid Bills for More Than a Decade, Demands Student Borrowers Pay Their Bills.”
Brutal but not completely accurate. Going to the Federal Election Commission’s page for her campaign and dropping down to the cash summary, ending cash on hand for her committee was $6,857. Debts or loans (and there was only one loan for $265,000 from the candidate herself) listed as still owed: $854,194. Worse than the story suggested. Perhaps her advice would come across more effectively if she had paid off what she owed.
Also, while students are advocating an end to their loans, most are paying, unlike some erstwhile political candidates. Out of 40 million Americans who have student debt, up to a quarter are delinquent or in default, meaning that 75% are paying like they should.
But the burden is so high because the country’s approach to funding higher education is unhinged. There are three steps that could make student debt far more rationale and reasonable.
Retroactively cut loan rates
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The burden of college expenses has clearly become untenable compared to what they once were. The College Investor website did an analysis on costs and loans. In 1976, the cost of tuition, adjusted for inflation to 2021 dollars, was $2,607. In 2021, it was $10,560, roughly four times as much.
The absolute cost is higher, especially when you consider all the other costs, like housing, board, books, and fees, are also going to be higher now than in the past. So even if loan rates are similar, the amount owed is much more. First step, slash the rates retroactively as was done for banks and highly qualified borrowers for about 15 years after the Great Recession. Then recalculate what was paid and what is then left to pay.
The country immediate reduces burden on people whose educational background it presumably needs, otherwise why help subsidize post-secondary education in the first place? If it seems too generous, given that there are many millions who can and do manage their student debt, then make it means tested.
Make student debt eligible for bankruptcy
Many students make plenty of mistakes when considering if they’re ready for college or what major might be best. If you can afford a Ph.D. in an obscure branch of art history, not a problem, even when you realize that there will be no jobs waiting for you. College should be more than an expensive trade school.
But eventually you will need to work if you aren’t an offspring of wealth. Perhaps getting multiple advanced degrees in a field will work for you. Or maybe you’ll rack up too much debt to ever realistically clear.
That isn’t the idea approach, but if it happens, then given those former students the chance that the wealthy and corporations can regularly avail themselves of, which is bankruptcy court. Reverse what was badly done years ago when student debt was made exempt from bankruptcy. That might cut some private lending because institutions would need to consider risk more rather than knowing someone would never be able to get out from under a giant thumb. If a Donald Trump can have his companies file for bankruptcy six times and leave millions in burden on all that sold or lent to them and his own shareholders as well, it’s reasonable that individuals should have access for much smaller sums and the likelihood that they won’t need a revolving door.
Have states 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 the electorate off their backs was to cut away large areas of government spending, like they money going into state universities.
We want people to go to college and have them be responsible for amounts they borrow. There is nothing inherently wrong in this. It is good for people to pay back money they borrow and not indulge in the moral hazard of assuming there is always someone to bail them out. But the increase in college costs isn’t simply an issue of too many amenities for on-campus lift. It’s that there are significant amounts that have to be spent and states have cut so much support that students and their families are crushed.
Time to spread the cost because all of society benefits from a better educated populace. Let’s ante up as we should and again make education financially obtainable at public institutions. The private ones will likely find ways to follow.