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The Problem With Helping Student Loan Borrowers Before Fixing College Costs

Plenty of political candidates have made huge promises when it comes to student loan reform, but there’s a gaping issue with most of the solutions they propose. Student loan forgiveness may wipe out student loan debt for the 40+ million consumers who have it, many of whom struggle to keep up with payments.

However, loan forgiveness plans on their own don’t make college any less affordable, and they don’t help future generations who still have to pay tuition and fees to earn a degree.  Think about the high school senior, who’s about to start college. If loans are forgiven, but they still have to borrow to pay for college post-forgiveness, what happens now?

That’s why Mark Kantrowitz of SavingforCollege.com says widespread forgiveness of student debt without simultaneously addressing college affordability is only a “temporary solution” at best. 

“After a few years, you’ll be back where you started, with many students graduating from college with too much student debt,” notes Kantrowitz.

Worse, he says this adds the potential for moral hazard, where the new student loan borrowers will borrow more or enroll at a more expensive college with the expectation that their debt will be forgiven. This can also create a very dangerous (and expensive) cycle, where people who want to be lifelong learners can just stay on the dole forever since they know someone else will pick up the tab.

Kantrowitz points out that this is probably why Bernie Sanders focused on free college tuition in his campaigns above all else. 

“He feels that college is a human right that should be free and that students should be able to graduate without any debt,” he says. However, forgiving all student debt was also consistent with Sander’s idea, to free college graduates from their debt burden.

What Is Biden Promising Voters?

Democratic Presidential candidate Joe Biden does offer a dual approach to dealing with college costs in his 2020 Plan for Education Beyond High School. Among other listed goals, his new proposal would:

  • Provide two years of community college or “other high-quality training programs” without any debt for anyone who wants to attend
  • Make public college and universities tuition-free for all families who earn less than $125,000
  • Double the amount of available aid offered in Pell grants
  • Rework the Public Service Loan Forgiveness program (PSLF) so that it works for more public servants

Biden’s plan would also broaden income-based repayment plans so those who earn $25,000 or less on their student loans wouldn’t be required to make any payments or accrue any interest. People who earn more than that would pay just 5 percent of their discretionary income beyond the $25,000 threshold toward their loans. After 20 years of responsible payments, the remaining loan amounts would be forgiven. 

Everyone with existing or new federal student loans would automatically be enrolled in the new income-based repayment plan. Finally, Biden proposes changing the tax code so that debt forgiven after 20 years of payments would not be treated as taxable income, and thus would not become a student loan tax bomb

It’s easy to see where the problems come into play with Biden’s ideas, no matter how well-intentioned they probably are. Making college tuition-free for families who bring in less than $125,000 per year could easily create a situation where parents are forced to make career moves to get their income below this threshold. Further, individuals who earn less than $25,000 per year and don’t have to make payments may feel inclined to never earn any more than that. 

Plus, none of these plans do anything about the growing costs of higher education. They only move the liability of covering these costs from students to taxpayers. If history is any guide, transferring liability to taxpayers will not bring college costs down. In fact, the opposite will likely come true, and institutions of higher learning will continue looking for more ways to boost revenue since the government will ultimately foot the bill.

What Should Be Done About Rising College Tuition?

Should the government step in to set limits on the cost of college tuition or how much schools can increase prices each year? This is an item many won’t agree on, but there are plenty of strategies schools and students can use to make college more attainable for more people.

According to career consultant and Christopher K. Lee, MPH, CPHQ of Purpose Redeemed, one solution is to eliminate required courses that no longer provide the skills and knowledge modern employers demand, which would require a change to the slow and outdated accreditation standards of U.S. higher education.

“Why should students be forced to take marginally helpful classes and go deeper into debt?” he asks. 

Colleges could also take steps to create lower cost online education options, or to expand two-year degree programs and career training programs.

Obviously, however, some of the responsibility of reducing college costs really should fall on students and parents. We need to get to a point where consumers become unwilling to borrow $100,000 to earn a fine arts degree that isn’t tied to a specific career, and then maybe schools will have to tweak their programs accordingly.

“Life involves trade-offs,” says Lee.

Lee says he feels it’s clear we are starting to reach a “tipping point” where many are beginning to question the wisdom of going to college in a traditional sense. And perhaps that’s what needs to happen for any real change to occur.

In the meantime, students can look for lower cost ways to work toward a lucrative career, whether that involves attending a two-year community college, participating in a career training program, or attending an online school with lower costs and living at home or with roommates.

The reality is, something has to give, and the government cannot fix higher education without addressing massive student loan debt and the system that is set up to create it. Any “fix” that doesn’t look at both sides of the equation will only lead to other, more damaging outcomes down the line.

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