Tuesday, November 2, 2021

105 Organizations Want Biden to Cancel All Student Loan Debt: It Ain't Happenin'

 More than one hundred public interest groups sent a letter to President Biden this week urging him to cancel all student debt. How much are we talking about? Close to $2 trillion.

I will say upfront that I support wholesale student-loan forgiveness. As numerous studies have pointed out, burdensome student debt has kept millions of Americans from buying homes, having children, and saving for retirement. 

If the President were to cancel all student debt, 45 million college-loan borrowers could pour approximately $5 billion a month back into the economy.  That would be good for everybody.

Nevertheless, I don't think President Biden will wipe out $2 trillion in student debt. As Betsy DeVos, President Trump's Education Secretary, pointed out in a 2018 speech, student loans make up one-third of all federal assets

What will be the consequences if the federal government removes one-third of its assets from the national balance sheet?  I don't think anyone knows.

Also, the President surely realizes that forgiving all student debt undermines the integrity of the federal student-loan program.  If all student loans are forgiven this year, how can the Department of Education expect to collect on the student loans it makes in the future?

Moreover, I don't see the wisdom of wiping out $2 billion in student debt unless American higher education is fundamentally reformed. Tuition rates have reached an insane level--$25 thousand per semester at most private colleges. Colleges are cranking out worthless degrees in the liberal arts and social sciences, not to mention vapid graduate degrees in law and business.

And we have far too many colleges. Does it make sense to grant wholesale student-loan forgiveness while the government continues propping up the for-profit college industry and small schools that are losing enrollment and teetering on closure?

I think everyone who calls for massive student-loan forgiveness is sincere. I believe our President and most members of Congress really want to grant relief to millions of Americans who are saddled with unmanageable debt levels.

But when we look closely at the federal student loan program, we see what a monster it has become. We can't fix the loan program without fixing higher education on a massive scale.  And no one has a clue how we can do that.














1 comment:

  1. "Does it make sense to grant wholesale student-loan forgiveness while the government continues propping up the for-profit college industry and small schools that are losing enrollment and teetering on closure?"

    No it does not make sense -- nor does it make sense to put post-secondary membership associations (aka Accreditors) in quality and Title IV gatekeeping roles -- "members" are the colleges, and the accreditors' mission is to keep the federal cash-flow spigot open. To hell with quality. What's that anyway when you're raking in oodles of federal dollars?

    "[W]hen we look closely at the federal student loan program, we see what a monster it has become. We can't fix the loan program without fixing higher education on a massive scale. And no one has a clue how we can do that."
    Exactly correct -- the solution will be unforeseen, and brutal.

    Aswath Damodaran teaches at NYU-Stern and put it this way:
    "One thing that needs to factor into any story about education is that tuition is not and has never been a market set number. As a consequence, bubbles and corrections to bubbles have no simple mechanism to work through into price. Consequently, I think that the pain will show up not as lower tuition (as would be the case with a market-set price) but with more college failures, more desperation for donation money from survivors and more pleas for a government bailout or protection (perhaps in the form of government-funded tuition)."

    Randall Collins thinks tuition can grow and grow until it consumes the entire GDP, and then some. I hope he is wrong. Morally bankrupt institutions should never have that kind of power. Never!

    ReplyDelete