SPRINGFIELD — A few years back, I was driving through downtown St. Louis with my family when we saw a group of young people waving signs that said, “Forgive my student loans.”
My wife gave me a perplexed look and said, “Why shouldn’t they have to pay back their student loans like everybody else?”
And there is the rub.
Student loan forgiveness sounds magnanimous until you figure out it really means folks who either didn’t go to college or who have already paid for college will end up footing the bill for someone else’s college education.
After all, these are federal loans that are underwritten by the American taxpayer.
The predicament we are in now is not all that different from the housing crisis in 2008.
Back then, bank presidents were giving loans to home buyers who would not likely be able to pay the loans off. Why would bankers do such a thing? Because they could immediately sell those loans to the federally sponsored organizations Fannie Mae and Freddie Mac, leaving taxpayers on the hook if the borrowers defaulted.
University presidents are doing the same thing today. They are admitting students into degree programs that lead to careers where there is little chance individuals will earn enough to pay for the cost of their education. Why would a college president do this? Because students are able to borrow federally backed student loans, and if they can’t pay the money back, again, taxpayers are responsible.
“Back in the 1970s, 25% of all people between 18 and 25 were in college. Today that number is 50%. Are young people twice as smart as they were back then? I don’t think so. Colleges have lowered their admissions standards,” said Antony Davies, a professor of economics at Duquesne University.
The current student loan system contributes to the tuition hyper-inflation we are now experiencing in higher education.
Colleges raise tuition because they know students will cover the increased cost with borrowed money. Students borrow more money because tuition has been raised. And the self-perpetuating cycle continues.
The interesting thing about this cycle is where the money is going.
“The student/professor ratio has remained unchanged over the years,” Davies said. “The growth we have seen is in the area of administrative overhead. More and more people are being hired to do things like make sure the university is complying with government regulations. They have no direct contact with students.”
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Mary Clare Amselem, an education policy analyst for the Heritage Foundation, said another factor driving costs in higher education falls under the category of “student life.”
“Students are demanding more luxurious dorms, gymnasiums and other amenities, and that, too, is driving up costs,” she said.
So how do we reform the system? The most obvious way is to have student loans underwritten by the college the student is attending rather than the federal government. This would force university administrators to ask tough questions such as: Can someone earning an art degree pay off a $100,000 debt?
Risk is not a factor the federal government considers when it gives out student loans. It charges a philosophy major the same interest rate as a chemical engineering major. That makes little sense. Engineers command higher salaries upon graduation and are less likely to default.
If colleges and universities were investing their own money by lending to students, it is far more likely they would factor in the risk they would be incurring and charge varying interest rates based on what degree is being pursued and the likelihood of repayment.
More important, in the private sector — whether it is a bank, college or other institution — there is the likelihood that students overextending themselves will be told “no.”
This is important because the current student loan system doesn’t function this way.
“Basically, our current student loan system is like giving an 18-year-old kid a credit card and telling him to charge whatever he likes and he can worry about figuring out a way to pay for it later,” Davies said.
And this “blank check” mindset has contributed to universities competing to attract students by offering more expensive amenities rather than more affordable tuition.
Put the onus on higher-education institutions to ensure students repay loans, and college leaders will be forced to evaluate their degree offerings and whether they will offer students and the institution the needed return on investment.
This should cause universities to lower administrative costs, trim frivolities and take a cold, hard look at their degree offerings.
We shouldn’t be forgiving student loans; we should be reforming a system that puts so many students in such deep debt.