Should Federal Taxpayers Pay Off Student Loans?

During the 2016 presidential election, the student loan debt of Americans was one of the issues that attracted attention.  Bernie Sanders, for example, advocated for the federal government paying the college tuition of students attending public colleges and universities — with the cost to be covered by a tax on “Wall Street speculators” — and others argued that the federal government should pay off the student loans of college graduates who have found that the real-world problem of paying off their debt is interfering with their ability to follow their dreams.

So, should the federal government pay off student loan debts?  After all, the feds bailed out GM and has helped the big banks, and our politicians have just approved a $1.3 trillion interim spending package — so why not just toss a few billion dollars more onto the national debt load and help out those overwhelmed college grads who are working as waiters or baristas rather than pursuing whatever career awaits philosophy majors?

One of the problems with one-size-fits-all solutions is that, by definition, they do not take into account the important differences that may be revealed if individual circumstances are examined.  That’s where a recent survey of college students comes in.  A company called LendEDU, which operates in the student loan space, polled 1,000 college students at four-year institutions who are receiving student loans — and it found that more than half of them admitted to using their student loan proceeds to pay for spring break vacations.

That’s possible because of the way student loans are administered.  Colleges and universities get the proceeds, take out the tuition costs, and then remit the remainder to the students — who can use it for pretty much whatever they want, including some fun in the sun with their fellow students.  The LendEDU poll isn’t scientific, and of course there are highly responsible college students who aren’t using their student loan proceeds for a frolic and detour on the beach.  Nevertheless, how students actually used their student loans certainly seems like the kind of information we’d want to consider before we decide to pay off their debts.  (And, incidentally, I would apply the same test before bailing out large corporate institutions, too.)

Which of the federal taxpayers among us wants to foot the bill for last Saturday’s excellent kegger?

Student Loan Scofflaws

The Wall Street Journal recently reported that 43 percent of the people who have borrowed money from the federal government’s principal student loan programs aren’t making payments or are behind on meeting their debt obligations.  The people comprising that 43 percent collectively owe the federal government more than $200 billion.

The figures are stark, and staggering.  3.6 million people who are out of school and in the workforce are in default on their loans — which means they haven’t made a payment in a year.  Another 3 million people are delinquent on their payments, which means they’re at least one month late but not yet a year behind, and another 3 million have received permission to postpone their payments because of some kind of financial emergency.

The federal government is trying to figure out why payments aren’t being made, and some consumer groups are contending that debt services aren’t letting the troubled borrowers know about available payment options.  Three realities, though, seem pretty clear.

First, many of the people who thought getting a college degree, any college degree, would be the ticket to financial security have learned that they were wrong.  Whatever their major or career plans, there just aren’t enough good jobs out there to allow them to repay their loans.  Second, the feds do virtually nothing to determine whether student loan borrowers are good credit risks — they don’t typically perform credit checks, require co-signers, or evaluate whether the borrower’s intended course of study or capabilities make repayment likely.  And third, once you’re out of college and trying to make it on your own, your student loan debt is the lowest of the debt priorities, behind your home loan, your car loan, and your credit card debt.  What’s the federal government going to do, repossess that diploma that isn’t worth the paper it’s printed on?

It’s not clear whether the federal government’s experience is true for all student loan debt.  If so, that’s a troublesome fact, because the WSJ article also notes that there is now more student loan debt than credit card debt, car loan debt, and any other kind of consumer loan debt.  Student loan borrowers collectively owe $1.2 trillion.  If almost half of the federal borrowers aren’t making their payments, will the same thing happen to that enormous pool of debt?

Politicians love to talk about how everybody should go to college and the federal government should help them do so by making loans available.  That siren song sounds good, but the reality is more uncomfortable.  Readily available student loans have just allowed colleges to jack up their tuitions, and college degrees aren’t a guarantee of a good career and financial success.  College isn’t necessarily for everyone, and struggling students aren’t going to benefit from borrowing tens of thousands of dollars to scrape by and get a degree in a major that isn’t in demand in the economy.   And broken windows theory would tell us that it’s not doing America any good to have a growing body of millions of people who aren’t paying their debts.

Student Loans And Shrinking Choices

We’ve all heard a lot lately about college students graduating with crushing amounts of student loan debt.  A recent Washington Post article brought home the grim and spiraling reality of student loan debt — and made me wonder what its long-term ramifications are for the families of those students and the economy as a whole.

The Post article compares consumer debt loads in 2005 to those in 2014.  Nine years is not a long time — less than a decade and only one presidential administration ago — but the changes are dramatic.  The percentage of 20-somethings with mortgage debt has fallen from 63.2 percent to 42.9 percent, and the percentage with student loan debt has almost tripled, from 12.9 percent to 36.8 percent.  In short, fewer are borrowing to buy a tangible asset and more are borrowing to acquire an intangible asset with uncertain value.

We don’t know how far up the age scale this exchange of mortgage debt for student loan debt extends, but the homeowners among us should consider what a shrinking pool of potential buyers means for the value of our property and our chances of selling it.  Banks won’t view young people who owe tens of thousands of dollars in student loans as good candidates for hefty mortgage loans, and young people who can’t find the high-paying job they need to make debt payments won’t want to be saddled with a house that might interfere with their freedom to move to where jobs are more plentiful.  The upshot is shrinking choices for debt-addled 20-somethings and shrinking options for the rest of us.

But the impact goes even farther.  The Post article shows that people in their 60s also have increased their student loan debt, and that more families in every income bracket are borrowing to pay for college.  The cost of a college education thus affects entire families, with credit-worthy senior citizens taking out loans to help their children and grandchildren pay for that diploma.  The acquisition of new debt by 60-somethings runs counter to the most fundamental rule of retirement financial planning, which is that people nearing retirement should pay off debt rather than taking on more.  How many older people are deferring retirement to pay off student loans — and in the process hanging on to jobs that might otherwise be available to those recent college graduates?

For too long we have viewed a college degree as a kind of holy grail that will inevitably produce a successful career and have geared national policy to make college more “affordable” by increasing the availability of student loans.  That approach has removed any incentive for colleges to hold down costs, and the result is sharply increased tuition costs funded by long-term consumer borrowing that affects entire families.  I’m as much of a fan of a college education as anyone, but isn’t it time to challenge our colleges and universities to figure out a way to provide that education at lower cost?

The Double-Edged Student Loans Sword

Student loans have been a focus of many of the speeches at the Democratic National Convention.  The speakers obviously feel that talking about “making college more affordable” through more student loans is a winning issue — but is it?

To be sure, at one time going to college, and especially being the first person in your family to do so, was viewed as a sure way to get ahead and realize the American Dream.  Is that still the case?  As the scope of student loans has expanded — and as such loans have been used to finance educations in traditional colleges, and trade schools, and for-profit schools, and as all such schools seem to increase their tuition requirements on an annual basis — many have come to see student loans as less a gateway to opportunity, and more as a gateway to lifelong debt.

The statistics about the debt load related to student loans are striking.  Believe it or not, the Treasury Department is garnishing the Social Security payments of more than 115,000 senior citizens — to pay off their student loans.  More than 2 million people 60 and older have student loan debt; I know people who are hoping to pay off the loans they took out to attend college and law school at some point in their 50s.  As the article linked above indicates, younger Americans are carrying enormous amounts of student loan debt, debts that have affected the choices they are making about their careers and their lives, debts that have affected their parents who agreed to guarantee the repayment of those loans, and debts that may even make it impossible for the students to later get a mortgage for their purchase of a home.

How much has the easy availability of student loans encouraged universities, trade schools, and for-profit colleges to constantly increase their tuitions, rather than looking for ways to reduce costs?  How are students who borrowed heavily to go to college, or graduate school, or both, to manage in an economy that isn’t producing enough jobs that will allow them to comfortably repay those debts?  How many individuals who took on such loans now regret that decision?

Going to college and receiving a higher education is great, but you need income to repay debts — and that means getting a good-paying job.  If a struggling economy isn’t creating such jobs, student loans can quickly go from a blessing to an albatross.

A Speech To College Freshmen

College classes are starting again, and everywhere excited college freshmen are heading off to their new schools, accompanied by worried parents.

Every college makes a big deal about graduation and brings in big-name speakers to talk about what the graduates should do with their degrees.  I think that approach is backward.  By the time you’ve got your degree, you’ve already made a bunch of choices that have put you on a certain path.  Kids could use some honest advice at the beginning of their college career, not the end.  Here is my advice to the incoming freshman class.

Greetings, you freshmen, and welcome!  Now that you’re settled in and have met your roommates, it’s time for you to consider an important question:  are you sure you want to be here?

In case you haven’t heard about it, getting an education at a college like this one is very expensive.  Chances are that you, or your parents, are borrowing the money to pay for your chance to study in these ivy-covered buildings all around us.   Those loans are going to be with you and your family for a long time, and the need to pay back what you have borrowed may affect a lot of the choices you will be making after you graduate.  If you are taking out student loans, you may well still be repaying them when you are in your 30s, or even 40s.  So, before you make that kind of long-term commitment, think for a minute:  Are you sure you want to borrow tens of thousands of dollars to get a college degree?

If your answer to that is “yes,” then you need to think about what you can do to achieve some kind of meaningful return on your investment in yourself.  Do you have a real interest that you want to pursue, or are you here because everyone knows that a college degree helps your job prospects?  If you are in the former category, follow your interest, but do it seriously.  Don’t dabble!  Take the courses that give you the best grounding in that area of interest, get to know your professors and advisors in that area, and look carefully at the training programs and internships that are available here.  If you are in the latter category, look to take the toughest schedule you can.  Don’t avoid the math and science courses because you think they’ll be too hard.  In our world of constant technological advances, people who have some grounding in math and science are better positioned than those who never ventured outside the humanities curriculum.

And speaking of long-term consequences, try to avoid them in your personal life, too.  That means having a little self-respect, and not heading down to the 24-hour soft-serve ice cream dispenser in your dorm cafeteria every night.  In case you haven’t noticed, we have an obesity problem in this country, and you don’t want to become part of it.  Your goal should be to avoid putting on the “freshman 10” — or 15, or 20, or 25.  And if you’re given the chance to engage in underage drinking — and we all know that chance will come, don’t we? — think before you drink!  You don’t want to drink and drive, or lose control of your senses and end up with a splitting headache and hangover in a stranger’s bed, or develop a life-long drinking problem.  In short, show some self-respect!

I’ve got only one more bit of advice for you:  accept that your new roommates seem a bit weird — but also understand that you are, too.  Notwithstanding what your parents have been telling you for the last 18 years, you aren’t perfect or the pinnacle of human evolution.  You’ve got your faults and foibles and odd habits, and your roommates do, too.  Accept their idiosyncrasies, and they’ll accept yours.  As you move through life, you’ll come to realize that cheerfully accepting other people’s differences, and being able to interact civilly with them despite those differences, is one of the most important lessons you can learn.

Good luck to you all!  In today’s world, you’re going to need it.