More Americans Support Blanket Student Debt Forgiveness, Here’s Why They are Wrong
A recent GoBankingRates survey found that over 50% of Americans want student-loan forgiveness for everyone with any student-loan debt. Considering Democratic lawmakers are hoping President Joe Biden will keep his promise to cancel $50,000 in student debt per person, this data could certainly be used for leverage. But while the number of Americans who now want to see all higher ed-related debt simply erased from the books is growing, it doesn’t mean that we should follow along.
Pandemic and lockdown-related unemployment coupled with a slow economic growth following the low reopening of most states have, indeed, made it difficult for countless Americans to pay off their debt. It is thus natural to see U.S. residents wanting to help those in difficult situations. However, blanket loan forgiveness isn’t a response to hardship. It isn’t even a response to the broken American higher education system. Instead, loan forgiveness will only remove our attention from the errors of subsidized higher education.
Despite politicians’ best efforts, there’s simply no bottomless pit of money anywhere. Taxpayers, and even the Federal Reserve, will eventually run dry.
Government Owns Most Debt
To many libertarians, the fact that the U.S. Department of Education (DOE) owns more than 92% of all student debt makes loan forgiveness a no-brainer. They argue that as long as the federal government owns the loans, we shouldn’t dismiss complete forgiveness. But as pointed out by the same writers, giving the government the ability to erase such loans without first repealing its ability to subsidize higher ed won’t attack the root of the problem.
Beginning in 1993, the federal government entered the student loaning business, prompting student debt to go from $353 million in 1993 to $109 billion in 2006. At the time, however, federal loans amounted to 23% of total student loan debt.
Thanks to the Health Care and Education Reconciliation Act of 2010, things began to change.
With the DOE being required to administer all federal student loans, student debt has doubled, thanks in part to the fact that these loans are protected from bankruptcy laws and are offered to students of all backgrounds.
No need for credit checks or other payback guarantees of any form. If you’re eligible to go to college, you can get a loan.
To young students that sounds like a dream—and an attainable one. As soon as they obtain their degree and the bills begin to pile up, however, reality comes knocking.
Easy Loans and Widespread Confusion
We’ve known since at least 2015 that “more than half of alumni [of 53% of institutions] are not even earning more than a typical high school graduate within six years after starting at the school.”
By 2019, we learned that more than 80% of students relying on federal student loans fail to make more than the average high school graduate.
By now we should be wondering why we ever let ourselves be so easily duped into putting all of our hopes and dreams into the hands of federal authorities.
If college degrees were, indeed, the key to our happiness then how does one explain the fact that at the height of America’s higher ed explosion, the most educated group in the country is also the one most likely to be paid less? As many discovered the hard way, a college degree won’t always boost your earnings. And, as a matter of fact, it might not even be useful to the careers students end up choosing following graduation.
By making loans as easy to access as they are now, the government created two problems.
First, it caused a higher ed boom, which pushed the overall cost of college tuition up due to the high demand. Secondly, it gave students skewed incentives, making them ignore their own inclinations and abilities and prompting them to move into a world that, in most cases, was not at all what they expected.
By making college unaffordable to anyone unwilling to take out a loan and warping students’ incentives, America created the student debt crisis.
Forgiveness Rewards the Irresponsible
Those who made the decision to take on these loans knew they would be required to pay it back eventually.
It was the very promise that they would be earning more than the average high school graduate that made them sign off on the deal. In many cases, graduates’ inability to make loan payments shows they have failed to take the consequences of their actions seriously.
Forgiving such loans will not teach young or older adults to make better life decisions. Instead, it will breed fiscal irresponsibility, showing scores of Americans that whenever they can no longer honor loans, the next step should be lobbying D.C. to do something.
Can we even afford to do something more at this point?