Changes are needed to the structure of student loans, but loan forgiveness is not the answer. As with most government created problems, the solution to student loan woes is to excise the government from involvement in them.
According to PolitiFact,
Just 58% of Americans say a four-year degree is worth the price, according to a recent survey from American Public Media’s research lab…Mounting costs have prompted Democrats such as Sens. Elizabeth Warren and Bernie Sanders to introduce plans to forgive outstanding student loan debts, which now total $1.48 trillion.
In 2014 the Federal Reserve Bank of New York asserted that the opportunity cost of not having a college education was worth the expenditure on that education. In other words, the cost of the college education was realized in increased career earning potential. It is unclear, however, if that calculus remains true today. This was echoed by the Department of Education:
A survey of decades worth of data since the Department of Education began scaling up aid for students found ‘federal student aid increases university tuition rates, perhaps by as much as 60 cents on the dollar.’
Premier Biden and the Leftist Cabal want to forgive some or part of student loans. So, when the Left forgives all those loans guaranteed by the federal government, who will pay back those loans? Of course, we (dwindling numbers of) taxpayers and our children will be saddled with yet more debt. This is an all-too-familiar case of the government creating a problem and then creating more problems trying to solve the problems they created in the first place. Thomas Sowell asserts in Economic Facts and Fallacies that the federal government created the student loan problem by backstopping those loans. The (almost invariably ignored) 10th Amendment to the Constitution states, “The powers not delegated to the United States [federal government] by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people;” however, the federal government has consistently encroached into areas not delegated to it by the Constitution. Since the increasingly overreaching and tyrannical federal bureaucracy became involved in student loans, the cost of a college education has outpaced both the rate of inflation and the value of that education. While I can empathize with students saddled with debt upon graduation, no one held a gun to their head and made them borrow the money, agree to pay back the borrowed money, or made the student major in a subject for which the earning opportunities are poor. As a taxpayer, it is not my responsibility to pay for someone else’s student loans through loan forgiveness. It is WRONG to steal from one portion of the population to finance the poor decisions of a more favored portion of the population. The Government cannot be empowered or trusted to pick winners and losers.
According to Forbes, the price of a college education has risen eight times faster than the value of the college education (measured in increased wages). Forbes asserted
It’s no surprise that student loans now make up the largest chunk of U.S. non-housing debt. Yes, more than both credit cards or auto loans. Many Baby Boomers and Gen Xers remember working their way through college and graduating with little to no debt. Sadly, that feat is virtually impossible for the current crop of students and recent graduates.
The earning potential of different fields of study are well known and documented at sites like The Visual Capitalist. According to this site, the earning potential of a degree in Religion, Spanish, and Psychology were about half that of various fields of engineering and computers. There are a number of reasons why that is true, and one might argue that there is some bias in what employers are willing to pay for degrees in those fields. (I am sure racism, whiteness, and misogyny are to blame.) The facts don’t care about a student’s feelings, interests, aptitudes, or desires. There is more call in the real world for someone with the skills to design a bridge than the skills to opine on early Medieval literature or make up racist demagoguery like critical race theory or the lies of the 1619 project. Certain majors pay better than others. Period.
Another contributor to mismatch between the value of a college degree and the cost of a college degree is the poor perception of the trades as a career choice, such as becoming a plumber, electrician, or carpenter. For some reason, the trades seem to be seen by Millennials as demeaning or somehow less worthwhile than getting a college degree. As a result, we have an increasing shortage of people working in the trades (and a simultaneous glut of people with unnecessary degrees). Anyone who has found a skilled and honest electrician or plumber or car mechanic, knows that they are worth every penny they charge. According to financial planners I know, tradespeople seem to have better investment portfolios and greater economic well-being than many with college degrees. Graduating high school students need to be encouraged to go into the trades instead of getting a degree in a subject with little earning potential. We all know someone who has a degree in one field and is working in another field, because that degree provided no earning potential. A friend who works for a major food supermarket chain told me that management positions above store manager require a master’s degree. He got his degree in German, which he has never used. That grocery chain doesn’t care whether the degree is related to their business as long as it is a master’s degree! Basic economics says that increasing demand for a college degree – even a degree that has little utility – will raise the price of the degree. That is the basic supply and demand curve.
So, do I have a proposed solution? Yes! The short answer is to enforce the 10th Amendment and get the government out of the student loan business entirely. Let the free market that the Leftists hate so much do what it does best and get the government out of what it does so poorly: meddling with the economy.
When I take out a home or car loan, the bank uses my credit rating, earning potential, and other factors to assess their risk of me being able to pay back the loan. If I am a higher risk, I have a higher interest rate, and it essentially costs me more to borrow that money. At least that’s how it works unless you are in a preferred demographic. Interest rates reflect the lender’s risk. If the banks were free to set interest rates for student loans that reflect their risk, we would simultaneously control the rate of college tuition growth and encourage people to major in subjects with more earning potential (and value to the future of the nation).
There are a number of sites, such as the Hamilton Project that track earning potential by field of study. This is unambiguous and not biased by wokeism, leftism, or political correctness (at least not yet). If a student chooses to major in something with little earning potential, such as gender or ethnic studies (or anything that ends in “studies”), Renaissance literature, or art history, and if the government doesn’t meddle in the process, the student will have difficulty finding a lender willing to issue a student loan. If the student can find a lender, since the student’s earning potential is low, the lender will necessarily assess a higher interest rate to reflect the greater risk of default. Note, that getting the government out of the student loan business means that the government won’t steal someone else’s money to underwrite the loans, and so the risk of default falls entirely on the banks. One can imagine the interest rate for a low-earning degree could be quite high. On the other hand, if the student chooses to major in higher-paying fields of study, like math, engineering, sciences, or the trades, the interest rate might be very low. Students who major in high paying fields – or the trades – are much less likely to default on those loans.
Under this system perhaps schools would be forced to compete on the value of their education. They would have to work with the hated free market and industry to explain the value of degrees considered frivolous or offer fewer of those frivolous degrees. Perhaps schools would have to explain to parents the low employment rates of their graduates. As a hiring manager, I know there are schools and degrees that are not worth my time interviewing applicants, because the schools have lied to the students about the value of their degrees.
Every home loan I have signed requires a bank appraisal of the property. The bank does not want to loan me more money than the value of the collateral (home) in the event of default. Letting the banks set their risk tolerance would also provide a market-driven brake on the escalating costs of college degrees. The bank may assess the value of a degree in some subject as $x, and they would be unwilling to provide x + y dollars in student loans. Colleges and universities, finding themselves starved for students who can afford their tuitions would be forced to cut costs, increase value, or close. Ah, that hated free market again! It might not be a bad thing for non-competitive colleges to eliminate useless degrees or close their doors and to have the Leftists who inhabit those ivy-covered halls get jobs in the commercial sector and see what the real world is like!
The growth in cost of a college education is outpacing the value of that education by a factor of eight. This is driven by government meddling in student loans which have allowed universities to inflate the cost of tuition and fees – while simultaneously serving as political indoctrination camps. Presumably students and banks enter into loan agreements in good faith. Later remorse on the part of the student should be a learning experience, not a cost that taxpayers must bear. Getting the government out of the student loan process makes more sense than forgiving those loans and saddling taxpayers with that debt. Otherwise, if I have to pay for someone who I don’t know to get a college degree, I think I should have input on the field of study for that student to make sure I get my money’s worth.