Don't Cancel Student DebtMaking their monthly payments is a major drag for millions in their 20s and 30s, but federal forgiveness is the stupidest way to address this problem.
EMMA CAMP AND DANIELLE THOMPSON
7.29.2022
For many of the 43 million Americans weighed down by student loan debt, making their monthly payments is a major drag on their lives. About a third of undergraduates going for a bachelor's degree are either dropping out or taking more than six years to graduate, which means that lots of people carrying student debt don't even have a degree. Others are finding that what they learned in college doesn't even help them get a job.
Federal student loan debt hit $1.6 trillion last year. This is a major problem for people in their 20s and 30s. But the federal government simply wiping their debt clean is just about the stupidest way to address it.
Forgiving student loan debt altogether, as Sen. Bernie Sanders (I–Vt.) promised on his 2020 presidential campaign trail, would mean printing more than a trillion dollars, thus driving up inflation and bringing the federal government even closer to insolvency. While President Joe Biden hasn't proposed going this far, he has said he wants to forgive $10,000 per borrower. In the meantime, he's been using his executive authority to whittle away at the debt load, including a recent $85 billion expansion of loan forgiveness programs.
What Biden is doing is kind of like if you had a clogged sink that's flooding your apartment, but instead of turning off the faucet or clearing the drain, you grabbed a coffee mug and just dumped the water onto the floor. And while your house keeps flooding, you tell yourself that maybe you just need a bigger cup.
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The way to fix an overflowing sink is to turn off the faucet or unclog the drain—in other words, you go to the root of the problem. We shouldn't focus our efforts on the debt that results from expensive college but on the expensive college itself.
There's substantial empirical evidence showing that cheap federal loans are actually a major cause of the rise in college tuition, which has outpaced the growing cost of even medical care and housing. This theory was famously argued in a 1987 New York Times op-ed by then-Secretary of Education William Bennet, who wrote that "increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase."
When you give people more money to pay for something, prices tend to go up. And forgiving debt makes the problem worse. Students won't care as much if college administrators overcharge for their services because they'll probably never have to pay it back anyway.
There are several ways we can incentivize colleges to reduce their prices and encourage students to take educational paths that maximize a return on their investment.
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Source:
https://reason.com/video/2022/07/29/dont-cancel-student-debt/
