White House Set to Release Plans for Student Loan Forgiveness
One of President Reagan’s most famous quotes was “The nine most terrifying words in the English language are: I’m from the government, and I’m here to help.” These words of wisdom easily jump to mind amid reports that the White House is planning to release President Biden’s plan for student loan borrowers tomorrow. While the details are yet to be released, some reports indicate that $10,000 of debt could be forgiven for borrowers making less than $125,000 per year. Regardless of its size or scope, cancelling any amount of student loan debt is a bad deal for taxpayers as it fails to solve higher education’s cost problem, risks generating even more inflation, and fails to help future generations who remain just as likely to incur significant amounts of student loan debt.
Over the past 50 years, the price of college has risen at a rate 5 times higher than general inflation. Much of this increase can be attributed to the federal government’s subsidization of the market for a college degree. While the neediest borrowers can usually obtain the most favorable loan terms, the reality is that virtually any American can obtain a student loan if they apply for one. As a result, institutions of higher education are incentivized to hike their prices – the money comes in regardless.
Merely wiping away some student loan debt and pretending as if it never existed does nothing to solve higher education’s cost problem. Not only this, but it isn’t a fair policy for the millions of low- and middle-income borrowers who made sound financial decisions and sacrifices to pay off their student debt, nor does help future generations of borrowers who will still be forced to take out massive loans to obtain a college degree. Eliminating this debt even risks worsening inflation as these borrowers suddenly have what amounts to a $10,000 windfall, potentially causing a spike in consumer spending that exacerbates our already out-of-control inflation numbers.
The federal government should be focusing on solutions instead of bandaids. There are plenty of great ideas to help drive down the cost of higher education, including less overall government subsidization; increasing competition in the marketplace for student loans to generate the most favorable terms; encouraging students to pursue career, technical, and vocational schools at a lower cost; and holding colleges and universities accountable when they receive student loan money but graduate a small percentage of those borrowers. We explained the details of these solutions in an earlier post that can be found here.
Unfortunately, the amount of student loan debt currently held by Americans is a symptom of the broader cost problems in higher education, and the government should focus on treating the cause – not merely the symptoms.