Student Loans. A Bad Solution To A Bad Policy

In the Democrats’ evergreen policy of trying to buy votes with taxpayer money, we now have the student loan issue.  Put simply, President Biden and his big-spending colleagues in Congress want to forgive up to $6.2 billion dollars in student loans.  The various proposals run from partial forgiveness for those currently holding debt to complete forgiveness of all debt.

Democrats also have a plan to avoid the problem of student debt in the future. Free college.  Oooops!  Did I say free?  Actually, the plan is for the taxpayer to pay the colleges.  That is even a worse idea than the student loan program.

To understand the situation in which we find ourselves – or at least those of us with student loans – one needs to know how we got here.

We know that there are hundreds of thousands of degree-bearing folks who are straddled with significant debt.  For many, it has taken the place of mortgages as a major personal or family obligation.  In fact, it is preventing a lot of people from being able to purchase a home.  Many are in the so-called “credit trap” barely able to keep up with the interest on the loans.

This has happened because the entire loan program had a fatal flaw.  It was based on the false notion that government could enable folks to borrow more than they could afford without ramifications.  It created an economic bubble much like the government-created housing bubble that led to the 2008 recession.

The entire plan ignored the reality that when there are third-party payers, the costs skyrocket.  That is what happened to the student loans.  They were not an economic benefit to the students, but to the educational institutions, they attended.  The students were merely the vehicle to transfer money from Uncle Sam to the University of Whatever.

This resulted in American colleges and universities gathering more and more of this “free money” by raising tuition.  In fact, the cost of education rose far faster than inflation.  The Student Loan Program was a gold mine for the schools.  Essentially, it made the return on the investment in education worth less than the cost – as we see today in so many cases.

Very few students would have – or could have – come up with the money to pay for the exorbitant tuition – neither from personal family resources nor conventional loans.  The universities would have had to keep their tuition and other costs down to meet the real market.  Again, remember the housing bubble.

Now that the Democrats have created this economic crisis for so many younger Americans, what are they proposing to do about it?

Put simply, they want to write off their mistake by simply cancelling all or a portion of the debt they created.  How ironic — seeking political advantage by putting the past burden on the taxpayer disguised as a benefit.

A lot of Americans not only do not like the Democrats plan – it enrages them.  First are those who have already paid off their student loans (like me).

(As I recall, my loan was less than $4000 for four years at Knox College – a college with a comparatively high tuition.  Since I was a poor kid, the rest was made up in scholarships and a fraction from my parents and summer jobs.  Ironically, I have recently been getting spam calls to help me pay off my student loan – which was paid off almost 50 years ago.   But I digress.)

In addition to those who have paid off their debt, what about those just entering college next year – and the years after?  The tuitions have not gone down.  The loan program is still pumping out money to feed the colleges and universities. In other words, if the Democrats simply puncture today’s bubble, they will be creating a future one.

There is one approach that is not even being considered by Democrats – creating policies, pressures and incentives to drive the tuition costs down.  If I had the proverbial magic wand, that is where I would use it.

I would establish a formula that would create a target “fair tuition” number.  It would vary from institution to institution based on hard costs – including administrative costs and faculty compensation to faculty (the other BIG beneficiary of the Student Loan Program).  I would then reduce federal funding to those institutions – and grants to faculty — that exceed the standard.  I would also consider banning the receipt of student loan money from schools that do not meet the standard.

We could also develop a plan through which the specific schools assume a portion of the debt that their students incurred – and let them decide to write it off, or not.

As is the case in so many of the Democrats’ spending plans, the student loan write-off has an inflationary side-effect.  Just what we do not need at this time.

Unfortunately, there is no painless solution to the student loan crisis that the Democrats have created with their typical spend … spend … spend policies.  Uncle Sam cannot be the economic resource for everybody all the time.  Some challenges must be addressed at the state, local and personal levels.  WE need to empower the free market, not usurp it.  But Democrats do not believe in the basic concept of our ingenious federal system – and the Student Loan Program is just another sad example.

So. there ’tis.

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