“President Joe Biden made millions of Americans up to $20,000 richer by excusing them from repayment of money they had borrowed, costing taxpayers hundreds of billions of dollars.
The recipients aren’t the poorest Americans, the neediest, the unluckiest, the most indebted or those serving our nation most nobly. They qualify, rather, because they borrowed money for college.”
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“many of those receiving relief borrowed to finance graduate degrees like JDs and MBAs — a group hardly in need of financial help, but one that will remember this giveaway come November. But from afar, this choice looks absurd. As of June, American households held more than $4.5 trillion in consumer debt (excluding home mortgages), most of which was not student loans. According to the Federal Reserve, fewer than 1 in 4 households have student-loan debt, and it is more common among those with higher incomes. By what logic is “borrowed money for college” a sensible standard for selecting the recipients of unprecedented public beneficence?
The logic is uniquely American, and incredibly harmful. It is captured well in the familiar Hollywood trope of a teenager, discovering his family’s financial troubles, conceding gloomily that he can abandon his first-choice school and attend the state university nearby, only for a determined parent to insist: No, we will find a way.
In America, this is meant to be inspiring. But the statistics suggest it’s more likely to be a tragic mistake.”
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“Students who enroll in college are more likely to drop out or graduate into jobs that don’t require their degrees than they are to travel the expected college-to-career path. Research also suggests that what school you attend just doesn’t matter all that much: For men, school selectivity has no effect on future earnings; for women, more selective schools lead to more hours worked and lower marriage rates.”
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“On average, colleges in America consume more than $25,000 per student per year — second only to Luxembourg among developed economies and more than twice the spending in countries like Denmark, France and Germany. The focus on elite private colleges is especially harmful: While we constantly conflate the cost of the “college experience” with affording an “Ivy League education,” median tuition for an in-state, four-year public university is still only $8,300 per year. Every child in America can pay his or her own way at a perfectly good college for about half the income from a part-time, minimum-wage job.”
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“America should embrace the banality of the student loan as just one form of debt among many — chosen by some for purposes of investment, and by others for what amounts to conspicuous consumption, exploited by sellers of a product with variable quality. As luck would have it, America has a very good legal system for governing regular debt, complete with structures for managing risk on all sides, options for sellers to provide credit themselves if no one else will, and equitable relief for those who make commitments they cannot keep.
The keystone is our uniquely lenient bankruptcy system. Unlike in most other countries, the typical American can go to court, declare himself insolvent, hand over some remaining assets, default on his remaining debts and return home to a house exempted from the proceedings. This choice is by no means an easy one — his credit score plummets and borrowing becomes more difficult and costly; friends and neighbors are likely to notice, along with anyone who runs a background check in the future; feelings of failure and accompanying shame are common. Thus, while Americans file for bankruptcy far more frequently than Europeans, the occurrence is sufficiently rare that consumer credit remains widely available and affordable. The cost of bankruptcy is low enough to encourage risk taking and ensure that someone who truly needs a fresh start can get one, but high enough that most who can avoid it will do what they can to steer clear.
This is the option that should be available to all student-loan holders.
Continuing the desacralization of student debt, we should eliminate the labyrinth of government grants, loans, subsidies and guarantees that assert an open-ended public commitment to financing anything a university can think to charge for. Public support should come at the state level through funding of state university systems and at the federal level through a simple, means-tested grant that covers, say, 50 percent of the median state’s four-year public university tuition. Tying the grant value to the median state would prevent individual schools from extracting more money by raising tuition. Costs of room and board would be excluded. Young adults not enrolled in college do not expect the public to pay for their housing or food; neither should those enrolled.”
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“Where would students find additional funding for more expensive options? A private loan market would likely exist but, absent the guarantees and subsidies, credit would be scarce and expensive. Borrowers would tend to have limited credit history and few assets. Lenders would be poorly positioned to evaluate the likelihood of successful repayment. The prospect of discharge in bankruptcy would add further risk. These obstacles are features, not bugs. Loaning large amounts of money to teenagers with uncertain prospects and no collateral is a bad idea for lenders because it is a bad idea, period. Finding ways to make it sufficiently attractive to saddle those teenagers with the loans does no one (besides college administrators) any favors.
Fortunately, institutions exist with the capital to finance all the necessary borrowing, the information to assess the wisdom of borrowing to enroll, the resources to help students succeed and the incentives to make the system work. Those institutions, of course, are the colleges themselves. Just as sellers provide financing for cars, capital goods and sometimes real estate, colleges should be expected to finance the education they provide. Instead of cashing tuition checks before freshman orientation has begun, and leaving the student to someday pay back a third-party lender, colleges should receive tuition from their students after the fact, when those students have been launched into careers that allow them to afford the payments.
This shift would initially require institutions without large endowments to borrow working capital for providing today an education that would be paid for tomorrow. But most institutions will have sufficient fixed assets to secure the loans, and the federal government could play a role if needed in guaranteeing that financing — with default leading promptly to liquidation.
Meanwhile, students who made the choice to borrow under the old system would continue to repay those debts if they can, and would have the option to declare bankruptcy if they cannot. Such bankruptcies would cost the federal government much less than Biden’s broad-based loan forgiveness, and would help the transition to a better system and mindset rather than Biden’s doubling down on the broken one.
Colleges dependent on their own alumni’s future earnings to fund their operations would face a radically different set of incentives than today’s.”
https://www.politico.com/news/magazine/2022/08/24/biden-student-loan-forgiveness-00053608