Real Solutions to the College Debt Crisis
Regardless of where you fall on the political spectrum, it’s clear that we’re in the midst of a critical college debt crisis. The average college graduate now enters the workforce with the burden of more than $30,000 in debt, with some outliers leaving with $100,000 or more.
With a 6 percent interest rate (or higher), they’re immediately faced with an ongoing payment requirement that leaves them unable to save, unable to buy a house, and unable to accumulate wealth over time.
Many politicians have proposed what they claim is an easy, sensible fix: semi-universal loan forgiveness, or an immediate repayment program to eliminate college debt among graduates below a certain earning threshold. However, this fix won’t be effective long-term, and will end up causing far more problems than it solves.
Instead, there are better, more practical solutions to find.
Why Loan Forgiveness Won’t Work
Let’s start with a basic overview of why this mode of direct loan forgiveness isn’t going to work:
- Rewarding the fiscally irresponsible. Not everyone who graduates from college graduates with debt. Some people minimize their expenses, work hard, earn scholarships, and attend inexpensive universities so they don’t graduate with debt. Forgiving excessive student loans is a way of rewarding the fiscally irresponsible; not only is this unfair, it also enables fiscally irresponsible parties to find new ways to put themselves in bad situations (such as taking on credit card debt). It doesn’t solve the problem at the root; it treats a symptom of the problem temporarily.
- Ignoring the high cost of tuition. Debt is a problem in part because college tuition is unreasonable. Simply paying off the debt isn’t going to change this; it’s just going to shift the burden of tuition to the government and the taxpayers.
- Punishing taxpayers. This money isn’t free. It’s going to come from taxpayers, sooner or later. The government may borrow trillions of dollars to make this strategy work, but it’s going to add to our national deficit and weaken our economic position.
- Punishing the truly needy. If we’re going to launch a government assistance program, it should be for people who truly need it. Most of the people benefitting from a loan forgiveness program are college graduates with undergraduate or graduate degrees; these people have already gotten an education and are poised to make far more than high school graduates and high school dropouts over the course of their lifetime.
- Failing to stimulate the economy. The stated benefit of this program is to stimulate the economy, but how exactly would this work? Paying off debt doesn’t encourage someone to start a business, or pursue a better career, or create new jobs and opportunities. It makes them complacent and dependent on the state.
The Better Solutions
So what are the better solutions to this problem?
- Loan restructuring. Student loan refinancing already exists. Loan forgiveness programs already exist. Let’s facilitate more of these programs and introduce them to more people. With the help of more private lenders and widespread repayment programs, college graduates can take charge of their own debts and pay them off in a more reasonable way.
- Better personal finance education. Many students ended up in debt because they didn’t understand what they were signing up for; they were ill-prepared for the importance of personal finance. We need to change that by educating more people more thoroughly on financial topics.
- Further training and education. Some graduates struggle to find a job in their field after college, so let’s better train and educate them. Let’s make it easy for unemployed college graduates to find an open field. If they want to work, they should be able to work. If they don’t want to work, their financial burden is theirs to bear.
- Free market conditions for colleges and universities. More competition would almost instantly reduce tuition prices. Free markets aren’t perfect, but they’re fantastic for improving efficiency and reducing consumer costs; with lower tuition, the debt problem would disappear in years.
- More favorable conditions for entrepreneurs. More favorable conditions for starting businesses (such as lower taxes and fewer regulations) would lead to more entrepreneurship among college graduates. This, in turn, would make it easier for graduates to repay their debts, and would simultaneously stimulate the economy with new job growth and better overall economic conditions.
We need to make conditions better for our recent college graduates. And we need to create better long-term structures to support a healthy economy. But directly paying off the student debts of the masses is the wrong way to do it. Instead, we need a more comprehensive strategy that solves the problem -- rather than mere symptoms of the problem. It’s the only way forward that provides both short-term and long-term benefits.