Yesterday’s post sounding the alarm on the student debt crisis caused quite a stir. It was encouraging to see that the overwhelming majority of responses were positive or at least cautiously sympathetic. As a sample of public opinion, this blog’s readers track with polls of voters on the issue of student loan forgiveness.
Predictably, we did get our share of, “Personal responsibility!” “Free market!” “Bootstraps!” which argue nothing except that the person regurgitating those empty slogans is living in an epistemic closure bubble where it’s always 1988.
Happily there were also thoughtful readers who raised serious points of contention. The main criticism I’d like to address, and which should answer the others, is that my post highlighting the problem didn’t offer solutions. Frequent visitors to this blog will know that its readers are pretty sharp customers. We spent the weekend mulling over the student debt crisis, and we ended up finding solutions that should at minimum form a basis for negotiation.
A point that should be emphasized is that we’re not here to make demands on taxpayers. Politics is the art of deciding how best to order public affairs for the common good, and this process requires compromise. The plan I’ll lay out here is intended as an opening offer toward making a deal with Americans who are skeptical about student loan forgiveness.
First, it’s necessary that all sides accurately grasp the problem. The number one objection I’ve encountered to forgiving student debt is the assumption that US taxpayers will be on the hook for the forgiven amounts. Debt relief skeptics raising this objection are arguing from outdated information. These folks have the mistaken impression that most student loans are held by banks. While that was true before 2010, it is no longer the case.
A provision in the Affordable Care Act allowed the federal government to acquire student loan debts, which it did in earnest. Whereas the government owned zero student loan debt prior to the Clinton administration, by January 2009 it owned $150 billion, and that figure has skyrocketed to over $825 billion now. Today, the US government has an effective monopoly on student loans, acting as the creditor for 93% of student debt.
Because the federal government guarantees almost all student loans, they foot the bill in case of default. The current student loan default rate is 11.4%, and it’s expected to rise to 40% by 2023. Some experts warn that total student loan debt could reach $2 trillion next year, and that default rates could hit 50%.
That means taxpayers are already on the hook for over $100 billion in student loans and could be looking at a crushing trillion-dollar bill within three years.
But that’s if nothing is done.
Here is my proposal for averting a student debt apocalypse:
The US government cancels its share of the debt.
As US students’ primary creditor, the government could simply write off the lion’s share of student debt.
For those who doubt this is possible, consider that the Pentagon frequently creates and destroys 23 times more money than all student loan debt on its own ledgers.
Also bear in mind that the government already cancels student loan debt on a case-by-case basis through federal debt forgiveness programs and court rulings. This plan would simply scale up existing relief measures from the micro to the macro scale.
Though an excellent start, cancelling the government’s share of student loans still leaves us with over $600 billion in crippling debt. That brings us to …
Seizing universities’ endowments to pay down the rest.
Total US university endowments exceeded $500 billion in 2016. Even if that number hasn’t risen since, which it almost certainly has, taking those funds and putting them toward student debt not forgiven by the government would reduce the total student debt burden to $150 billion. Wonder of wonders, that’s the same amount of student debt the feds held prior to the Affordable Care Act.
Really makes you think.
Anyway, this plan’s first two provisions would slash the national student loan burden from $35,000 per borrower to $3500 per capita. Even a jazz/tap major working at Starbucks can manage that bill.
And keep in mind, Baby Boomers, your cohort holds over $65 billion in student debt. I’m for wiping your slate clean, too.
That solves the immediate problem, but we want to avoid a repeat of what happened in 2010, so here are some preventative measures to keep a disaster like this from happening again.
- Outlaw federal student loan subsidies.
- Require schools to cosign all future student loans.
- Make student debt dischargeable through bankruptcy.
But what do I know? I’m just a small business man striving to navigate a system stacked against guys like me. If you like the plan I’ve outlined here, please consider supporting my work.