What to do about the student debt crisis
Student loan debt is getting out of control. More than 1 million people default on their student loans every year. That is 22% of borrowers. And the numbers are rising; 40% will default on their student loans by 2023. For borrowers under age 30, their average monthly payment is almost $400. Student loan debt now exceeds $1.5 trillion — surpassing both auto loan and credit card debt. It is an epidemic that will continue to get worse unless something is done.
Making tuition “free,” as some Democrats recommend, isn’t the solution, since that just passes the debt along to other Americans as taxes are raised to pay for it. It also doesn’t work. In Sweden, where tuition is free, 70% of students borrow money for things like room and board. This is the same rate as students that take out student loans in the U.S.!
It would be nice to get the government out of the business of student loans completely, but since that will probably never happen, here are some realistic solutions that may help.
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There are two parts to this dilemma. First, the laws must be changed to stop this from continuing. Second, address existing borrowers who cannot repay their loans.
Stop the emphasis that everyone must go to college. The percentage of high school graduates going on to college has increased to 67%. But many people are perfectly happy with trade schools. Student loans for trade school are far cheaper than for college. Encourage people to join the military, which can help pay for school. Students need to start considering doing their first two years of college at a community college, then transferring to a public university. Some degrees, such as nursing, can be completed at a community college in two years. Urge students to work while going to college, even if it means taking longer to complete a degree. High school guidance counselors can be of great assistance in this area.
Start teaching money management as a required class in high school or college. Students today are so coddled by their parents they expect to have nice things while in college instead of putting the money toward educational expenses.
States should offer loans that are invested. One of my law school loans was from the state of Massachusetts. After I’d made payments on it for several years, I was informed that I no longer owed the $6,000 remaining on the loan because the bonds that had been invested in had performed so well.
Student loans aren’t dischargeable in bankruptcy unless a borrower can prove “undue hardship.” Few borrowers qualify under this high standard. This is unfair considering other type of debt is dischargeable, such as credit card debt and most tax debt. If student loan debt becomes dischargeable, lenders will be more cautious about who they make loans to. They won’t give loans to people with bad credit history or who plan on majoring in fields that don’t pay enough to repay the loans. It will also stop colleges from constantly increasing tuition, since lenders will no longer approve as much in student loans. The price of college is increasing almost eight times as fast as wages. The average cost of attending a public university is now over $20,000, and at least double that at private colleges. Each department in college has an incentive to use all of their budget or otherwise another department will take it and they will get less money the next year.
Allow students to refinance their loans. Currently, borrowers are only allowed to refinance federal loans to get a better interest rate if their loans haven’t yet been consolidated or they are taking a class. This is unfair to borrowers who consolidated at a time when interest rates were really high. You can refinance most types of debt, so why not student loans? Some student loan interest rates are as high as 13%. Interest starts compounding on most loans after they are taken out, so many find themselves graduating owing more money than they took out, since their first payments go completely to interest.
Allow more generous repayment plans. Right now, the income-based payment plans, even for people who work at nonprofits, are impossible for people struggling with other types of debt. Allow borrowers to pay back a lower amount each month, taking into consideration their other debt obligations. There is no student debt crisis in Sweden because payments are spread out over 25 years. In the U.S., payment plans are 10 years. This is even though Swedish students take out about the same amount in students on average as U.S. students.
It’s now hurting older people. Those above age 60 owe an average of $33,800 in student loan debt. The government is known to garnish their Social Security benefits to pay it off. It also hurts women disproportionately. They hold two-thirds of student debt, but make 20% less than men.
While it would be nice to leave the student loan business up to the free market, eliminating the federal government’s role in providing loans, good luck getting Congress to stop meddling. These options are at least far better than “free” tuition.
