Let's Fix Student Loans Before Democrats Do, and Solve the Higher Ed Crisis in the Process
For too long conservatives have ceded the initiative on federal policymaking regarding student loan debt. Whereas some conservatives quietly proposed tax incentives to make taking out debt in the first place less likely, liberals loudly trumpet debt forgiveness as a cornerstone of their platform. Just last month, President Biden announced plans to forgive up to $10,000 in student loan debt per borrower. The longer conservatives stay quiet, or beat around the bush, the more the discussion will be defined as status quo or forgiveness, and the more time progressives in mainstream media supportive of debt forgiveness will have to sway public opinion in their favor. Slowly but surely media advocacy will increase support for progressives' preferred debt forgiveness plan despite the fact $10,000 in forgiveness would be hugely inflationary and regressive, benefiting the richest borrowers far more than the poorest on whose backs progressives argue for debt forgiveness and who are most harmed by inflation.
Conservatives should pick a third path: mandate institutes of higher education (IHEs) provide a workforce-relevant education or foot the bill. Modeled off the Department of Education (ED)’s existing income-based repayment plans, Congress should give borrowers an option to shift debt repayment to their IHE if the student pays 15 percent of their gross monthly income (or household income for joint filers) for 120 nonconsecutive months after separating from the IHE without discharging the debt. This solution keeps students as the principal debtors while making sure borrowers whose IHEs fail them are not financially hamstrung for decades while the IHE gets off scot free.
Over the past few decades, the quality of higher education has decreased while costs increase. Today, IHEs seemingly focus more on propagating wokeness than creating well-rounded thinkers, while charging students more for the privilege of their indoctrination. Roughly one third of Americans age 25-29 live in multi-generational housing, indicative of their inability to find a job; this precipitous drop in young Americans returning to pre-higher education living arrangements brings the workforce irrelevance of their education into stark relief. Meanwhile, students shouldered a 13 percent tuition cost increase over the 2010s. Since 1980, this amounts to a 1,200 percent increase, compared to 236 percent increase for the Consumer Price Index of all items. In many cases, IHEs have become passive beneficiaries of teenagers taking out thousands in loans to secure unmarketable degrees. Conservatives should recognize that disconnect for what it is: a problem for the future of the American economy and for the American family.
Why Transfer Debt Obligations?
Student loans are the student’s obligation to repay, so why transfer the debt at all? After all, at the macro level no student is improperly or illegally coerced into borrowing money to pay for college. Notwithstanding the lack of coercion, it is in the national interest for all Americans (even those at the top of the income distribution where most debt resides) to feel sufficiently financially stable to have and raise children, make investments, and become productive and self-sustaining members of the economy. In addition, transferring debt to low quality IHEs incentivizes schools to provide objectively useful education rather than mere indoctrination.
Why 15 percent of borrower income for 120 months? Why 15%?
ED spends about $100 billion per year on IHEs via direct student aid, making the federal government the industry’s single largest benefactor. Yet while ED suggests 10 years as the ideal timeline for paying off student debt, most borrowers take roughly twice that time. This disconnect indicates the product being offered is not up to standard. By abiding by ED’s timeline, the federal government can impose proper incentives and with a light touch raise the quality of the product IHEs provide. Furthermore, with the added flexibility of instituting a 120 nonconsecutive month period payers can opt to enter forbearance should unforeseen circumstances arise without losing their chance at debt transfer. Additionally, by excluding those earning zero dollars from the ability to start counting months against the 120 month period, it would incentivize all graduates to enter the workforce.
ED recommends 8 to 10 percent of a borrower’s monthly income should be devoted to paying down student debt. Nearly doubling that amount demonstrates a student’s good faith commitment to repay the loan. The purpose of the policy is not to limit debtor obligations, but to ensure a debtor committed to his obligations can have the financial stability necessary to take important life steps essential to human flourishing. Therefore, if a debtor undertakes a good faith effort and fails to discharge the debt, he should be absolved of his debt and the other party (the IHE in this instance) should be obligated to step in, especially since IHEs are often responsible for failing to produce graduates suitable for the American workforce.
Collateral Benefit: Fix Higher Education Over-Saturation and Improve Quality
Overwhelmingly, students attend IHEs so they’ll be better positioned for the workforce. In a properly functioning education system, students should attend school, graduate, and be able to find a job in short order. Too many people with bachelor’s degrees oversaturated the market and devalues the degree. The effects are clear. Today, college graduates average up to 6 months to find a job, and more than half are either unemployed or working a job for which they didn’t need a college degree.
Too many colleges are defaulting on their obligation to their students. If IHEs had to pick up the tab for dropouts, those dismissed from the institution, and graduates who don’t get a return on investment from their degree, IHEs would engage in front-end risk avoidance to mitigate costs. IHEs would admit fewer students, in turn creating fewer graduates, the scarcity of which would make the college degree valuable again and increase salaries in the market to permit repayment of student loan debt obligations.
Disincentivizing attendance at IHEs would right-size the education requirements for many entry-level jobs which solicit applicants with degrees when the duties and responsibilities of the role can be filled by someone with a high school diploma, a GED, military service, or other relevant work experience. Excessive employer demands create a vicious cycle of young Americans needing additional education to be competitive in the job market, which in turn increases employers’ educational requirements. Excessive education requirements exclude the majority of Americans who do not attend college, never mind graduate, from jobs for which they would be otherwise qualified, further stratifying the so-called “laptop class” from the working class. Stratification of this sort is inherently detrimental to the health of civil society as well as restricts the ability of Americans without a postsecondary degree to rise in the income distribution.
Income-based repayment dragging on for twice ED’s recommended time to full repayment quantifies exactly to what extent IHEs currently fail students. It doesn’t have to be this way. When Tennessee adopted an outcome-based funding model for its public IHEs, for example, student performance improved.
Currently, IHEs have no incentive to provide students with a quality education that will set them up for the workforce and they will continue to fail students unless incentivized not to do so. The federal government, as the largest benefactor of higher education, can and should hold schools accountable and release debtors who have done more to repay their loan than ED recommends for a full decade but failed to do so. As it stands, IHEs are failing ambitious, hard-working students and when they do, they should pay the price.