We must confront the reality that “cancellation” of student loan debt may successfully serve a political campaign promise, but it fails as serious policy.
America’s polarized political system is ripe for radical ideas. Democratic political systems are based on the notion that politicians must find ways to appeal to voters. As the demographics of a population change, the types of political offerings change. Currently, a growing trend within the Democratic Party is to offer younger voters reforms to the student loan debt situation.
Crisis or Not?
The student loan debt “crisis” has been perpetuated by the myth that one’s best shot—perhaps only shot—at achieving success in life is to have a college degree. One of the long-term benefits of a degree in our skills-based economy is the opportunity to earn more than an individual with a high school diploma or less.
As Daniel Kowalski notes, government helped fuel this demand for higher education. Between 1980 and 2016, the number of higher education institutions increased from 3,231 to 4,360.
As Kowalski writes,
the government’s backing of student loans has caused the price of higher education to artificially rise; the demand would not be so high if college were not a financially viable option for some.
Since the 1980s, costs of education have surged eight times faster than wages. Unsurprisingly, a loan for $100,000 for a degree that may lead to a job with an annual salary of $40,000 per year is financially challenging.
Like other areas of government intervention, the government’s infiltration of student loan markets has produced unexpected trade-offs.
Is There a Solution?
Remarkably, leading Democratic contenders for the 2020 presidential nomination like Senators Bernie Sanders and Elizabeth have argued that the solution is to “cancel” outstanding student debt, currently totaling $1.6 trillion.
As some scholars, such as Cato’s Corey A. DeAngelis, have pointed out, there is no way to “cancel” these debts. The debt burden would merely be shifted to people who didn’t agree to take out these loans.
These plans have been described, quite fairly, as a “bailout for the elite, as the top 25 percent of households by income hold almost half of all student debt.”
The plans should be described for what really are: an effort to “buy” the votes of student loan debt holders, predominantly younger voters. According to USA Today, “forty-three percent of young voters, ages 18 to 29, surveyed said they are likely to participate in the nominating contests” in 2020. Comically, even Democratic Senator Amy Klobuchar, a 2020 Democratic presidential candidate, has said, “I wish—if I was a magic genie and could give that [free four-year college] to everyone and we could afford it, I would.”
Our current political discourse requires some grounding and perspective, as policymakers are right to note that student loan debt has larger implications on the economy writ-large. Given that Senator Warren’s plan is financially dubious and impractical on its face, it is worthwhile to explore alternative ventures this $1.6 trillion could support. That amount of money could:
- Give each of Los Angeles county’s 59,000 homeless residents roughly $27 million
- Buy every resident of New Jersey a $175,000 yacht
- Give each of the United States’ roughly 40,000 homeless veterans around $40 million
- Buy every resident of Texas a Tesla Model 3
- Develop 40 bases on the moon
Some or all of these things may be desirable. Yet to pursue them would ignore basic economic realities, including our growing federal debt. The United States currently owes around $22.5 trillion, a figure projected to rise over the next decade. There must be a concerted effort by members of Congress to address our national debt if we are to avoid a financial reckoning.
In the meantime, politicians ought to look for more grounded ideas to reform the student loan situation:
- Legislators can amend or remove the provision of federal law that exempts student loans from being discharged during bankruptcy.
- Thought leaders can promote trades and apprentice programs that will benefit young people in the current job market. (Some companies have promoted their efforts to hire individuals without degrees due to the tight labor market.)
- Policymakers can continue to promote relationships between online educational tools and higher education institutions.
- At The Wall Street Journal, Joseph Weinstein recommends that policymakers should reduce the salaries of university presidents and administrators.
- We can all work to debunk the myth that a university diploma grants a specific status in civil society.
Providing the wholesale cancellation of student loan debt may comfort those affected in the near-term. However, it does not address the underlying ills of our ways. Instead, we ought to look at the flaws in the government takeover of the student loan market and how it has artificially increased the cost of college attendance.
This fact may evade the bartering politicians, but it should not evade the average voter. We must confront the reality that the cancellation of student loan debt may successfully serve a political campaign promise, but it fails as serious policy.