Alternatives to Loan Forgiveness

Student loan forgiveness may very well be dead. That would be a good thing because it was always a terrible idea.

Two Federal courts have tossed a monkey wrench into Pres. Joe Biden’s plan to unilaterally cancel up to $20,000 in student debt. The Administration is appealing and it seems likely that the issue will be ultimately decided by the Supreme Court. Given the Court majority’s penchant for empowering the legislative branch it would appear that they are likely to strike down Biden’s move because it violate’s the authority of Congress to hold the purse strings. Biden’s action would cost the government (read: taxpayers) somewhere around a half trillion dollars. His extensions of the moratorium on payments, started under Trump, have already cost us $100 billion and he just extended it again — senselessly — for several more months.

Now, if you said we had $100 billion or $500 billion to spend on programs to help the middle class or the poor, would this be the best way to deploy those resources? Of course not. It happened because Democrats see that their base is now college graduates and so they wanted to pander to them. As a matter of public policy and of simple fairness it makes no sense. In fact, it’s a moral disaster because it undermines the very ideas of personal responsibility and of being good to your word.

But let’s assume that there is a God and so this awful idea will bite the dust. While I dispute the notion that there is any such thing as a student debt crisis, it is true that the cost of college has risen faster than inflation. (Still, the average student loan debt is $28,000 and the average premium for getting a four year degree is $1.2 million over a career. Where some see a crisis I see a good investment.)

To the extent that there’s any real problem to be solved, Biden’s plan didn’t touch it. There’s nothing in his forgiveness plan that addresses the underlying issues and, by the way, what do we do next year when a new batch of graduates hits the street? Will anybody ever have to pay back a loan? And, assuming that the taxpayers will just pick up the tab, won’t that just encourage college administrators to keep running up costs, including their own salaries?

Here are four things we can do that are actually good public policy.

First, dramatically expand Pell Grants. These are means tested so the help is targeted at kids and families that really need it.

Second, allow student debt to be considered when petitioning for bankruptcy. I’ve never understood why this debt is excluded in the first place. The good thing about bankruptcy proceedings is that they are based on the circumstances of the individual, not on a blanket forgiveness for groups.

Third, provide some kind of oversight and some sticks and carrots to get colleges to restrain their costs, especially in areas that are not directly related to instruction and research. There are too many administrators making too much money. There are too many fancy, expensive buildings. We could accomplish this in any number of ways. Maybe treat public universities like public utilities where rates (in this case, tuition and fees) need to be justified before some quasi-judicial body like the PSC is for utilities in Wisconsin.

Fourth, require a simple, standard form to be signed by students and parents before they take out a loan. The form would state the monthly repayment schedule. It would also be good to put students through an exercise where they calculate their likely income based on their choice of major. One thing I keep hearing from people who like debt forgiveness is that students didn’t know what they were getting into. I find that to be a weak argument. You’re taking on a major adult responsibility so it’s your obligation to do that with due diligence. Nonetheless, let’s make due diligence as easy as possible.

These four suggestions would address the underlying problem, help truly needy students and encourage personal responsibility. Taken as a whole this middle way is much better than Biden’s irresponsible and expensive plan. After the Court strikes it down, as I hope they will, maybe we can move on to something that makes more sense.