Steve Levy: Forgiving student loans is bad policy – but if it happens, demand that colleges do it
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Put aside for now how unfair this policy is to those who have already paid off their student loans or worked hard to avoid taking out loans in the first place.
Or the fact that those who did not go University and earn less, will subsidize those who participate and earn more.
Or how he’s going to be paid.
The big question is whether any action by Biden will tackle the underlying cause of the tuition fees which have skyrocketed uncontrollably in recent decades. A forgiveness program without reforming the whole system will fail.
That is why any college loan legislation must include a provision requiring colleges to cap their tuition fees if they seek to continue to exploit the protections offered to them by federal loan support.
Escalating costs for just getting a bachelor’s degree have burdened an entire generation with insurmountable debt. This is one of the reasons that young Americans have postponed homeownership, marriage, and family formation, as well as the reason they have such small savings and equity.
Consider these facts:
- Higher education costs almost 4.5 times more than 30 years ago.
- Students at four-year public institutions saw a 213% increase in inflation-adjusted tuition fees from the 1987-88 to 2017 school year, while private institutions saw a 129% increase.
- The Federal Reserve Bank of St. Louis notes that the average annual growth in wages was only 0.3% between January 1989 and January 2016, which means that university costs increased almost eight times faster than wages. .
- About 45 million Americans are saddled with a collective $ 1.4 trillion student loan debt.
So, before we can consider a solution, we must first understand what led to this massive increase. As I note in my book “Solutions to America’s Problems”, there are actually a number of factors, the main reason being the role of the federal government in dramatically expanding access to unlimited loans. and without conditions for universities.
The federal government’s decision to dramatically increase the availability of student loans has given colleges the green light to simply increase their tuition fees by a similar amount. So, if a family in the past could only pay $ 20,000 in tuition, they could now get loans to pay $ 40,000, $ 50,000 or even $ 60,000 per year. This gave university administrators the option of simply increasing their tuition fees by a proportional amount.
At some point there will be a point of no return, but it looks like we haven’t reached it yet. A 2014 analysis found that for-profit colleges eligible for federal student aid charged 78% higher tuition fees than those at similar institutions that were not eligible for aid.
One of the problems is that colleges have no skin in the game. If a student took out a $ 20,000 loan and failed in school, they would still be responsible for the loan, without the degree that would give them a degree. higher income. The college wouldn’t be responsible at all, but the government would. Without government support, colleges and / or banks that used to make these loans would be more invested in student outcomes and their ability to repay the loan.
Government support for these loans has generated a significant windfall for universities. So why does the government not just demand that if colleges want loans guaranteed, they will have to cap, or at least control, their tuition fees?
Such a condition would be perfectly legal since the college is not constrained to anything. They can always reject government intervention and loan support if they want to charge unlimited tuition. There is nothing wrong, however, with the government placing a condition on the support of these loans by the US Treasury.
Simply forgiving loans is like putting a band-aid on a gunshot wound.