Want to End the Student Loan Debt Crisis? Start with Higher Education Reform Mitchell Nemeth Follow Feb 5 · 5 min read

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Progressive politicians have made student loan reform a central tenet of their 2020 election campaign. Senators Bernie Sanders and Elizabeth Warren are at the forefront of this conversation. Their claim is that student loan debt is overburdening young and middle-age Americans. True, student loan debt is at unprecedented levels. However, their solution to this issue is to “cancel” debt for a select voting bloc.

This solution, while empathetic, is politically dubious and blatant pandering. As I previously outlined at Foundation for Economic Education, “the debt burden would merely be shifted to people who didn’t agree to take out these loans,” as well as those who have already paid off their loans. Additionally, Senators Sanders and Warren are seeking to make all undergraduate programs at public colleges and universities free. As The New York Times notes, “only 45 percent of student loans are used to attend public colleges and universities, presumably because tuition at those schools is already lower than in the private sector.”

According to the Census Bureau, roughly one-third (34 percent) of Americans have completed a Bachelor’s degree, a gain of about five percentage points from a decade prior. Still, around two-thirds of the American populace do not have a college degree. In effect, these plans to “cancel” the student loan debt of some Americans benefits a small but increasing proportion of the public.

Also problematic is that student loans constitute an asset for the federal government. Currently, this figure represents a little over half of all federal assets. Add to this noxious picture, the fact that a significant portion of these loans are delinquent. If a recession were to significantly hamper a large enough portion of federal student loan holders, this could puncture the massive economic bubble that has been steadily growing.

For the economy as a whole, the student loan debt crisis has become increasingly problematic because this debt crowds out investment in alternative avenues, such as fixed assets or savings accounts. Unfortunately, this crisis continues to be perpetuated because of the myth that a college-degree is “one’s best shot-perhaps only shot-at achieving success in life.” What is noticeably absent from this conversation is the role of public policy in skewing market incentives.

Public policy proposals such as the “cancellation” of student loan debt only serve to further exacerbate the problem. Since the 1980s, the cost of education has dramatically risen, surging eight times faster than wages. Which public policies further this?

● Federal government guaranteed loans are provided to higher-education enrollees regardless of future ability to pay or credit score.

● Plans to cancel undergraduate public college and university loans and make tuition cost-free may prompt graduate programs to “charge even more, since students might never have to pay back their loans.”

● Federal government loans also allow individuals to borrow “the full cost of tuition, books, supplies and living expenses to attend any accredited graduate or professional program.”

● College and universities’ successful efforts to lobby the federal government for grants and tax benefits (see the attached chart)

● Consistently dwindling state-government investment in higher-education. Free marketeers may advocate against government intervention in education, but state government investment in education may decrease the relevancy of student loan debt as a national, or federal, issue.