We’re missing the point on student loan problems

We’ve barely marked the official start of summer – not the wear white after Memorial Day part, but the equinox part on the calendar. And yet, the first signs of fall are already upon us.  

My friends are already over other sports and talking smack again about college football.  Meanwhile, friends are starting to post pictures on social media of taking their kids to college orientation.  

Summer seemed to once last a lot longer.  Then again, in the 1900’s when I was last in school, we didn’t get out “for the summer” in early May, nor return to school in early August just as summer’s heat was hitting its stride.

I, too, have been thinking about college this week, but for different reasons.  It seems that a political operative – specifically a Communications Director for a Democratic member of Congress – took to social media this week to thank President Biden for canceling his student loans.  

It was considered a bit of poor form as the Congresswoman he communicates for has been against forms of student loan forgiveness. It was also a bit of a rookie mistake to post his student loan statement showing the credit – complete with his home address.

Social media being what it is – and something a Communications Director should understand and have predicted – there was a bit of a pile-on reaction to his post. It didn’t take folks long to fill his replies with his salary (almost $100K) and the value of his home (about a half million dollars).  

Let’s be honest.  Those values are both on the low end for the D.C. metro area.  But that’s part of the embedded problem that too many in Washington forget.  The majority of the highest-earning zip codes in the entire country surround Washington, D.C., where our tax dollars too often go to die.

Of course, they don’t really die. But they do disproportionately transfer from working-class families across America to higher-paid bureaucrats and government contractors in the region, who often mistake their inconveniences as real struggles that everyday Americans must pay for.

What’s been missing from the student loan debate has been the debate itself.  There hasn’t been one.   

(Mostly) Democrats have been saying that virtually all student loans must be canceled.  That’s the plan.  Neat and tidy.  Many obfuscate the fact and a few even deny that the debt doesn’t go away.  It is just transferred from those who borrowed money to take college classes to those who pay taxes.  

The Congressional Budget Office last week increased its projections for future budget deficits, raising the 2025 estimate by 27%.  The largest component of that increase was student loan forgiveness.  

The deficit must be financed by the government borrowing money, now at an increasing rate.  This drives up interest rates and inflationary pressures.

Meanwhile, the (mostly) Republican response has been “You borrowed the money. You pay it back.”  And thus ends the “debate” as it currently stands.

Neither position solves a clear problem.  We are funding higher education at an unsustainable level.  If it were, we wouldn’t have this debt problem.

We give 18-year-olds the ability in virtual perpetuity to begin borrowing money without regard for their credit risk, the value added to them or to society for their degree, their future earning power, their future ability to repay, and any sense of return on that investment.  

Colleges and universities that used to weed out students who weren’t college material have inverted their business model. Student loans provide them with a never-ending supply of new customers, and they get paid whether those students ever graduate, much less learn something to make the taxpayer investment in them employable adults.

The housing crisis taught us a lot about lenders and customers who sold off all their risk. When TARP and subsequent bailout programs came along, they came with real structural changes for the entire real estate and banking industries.

We’re not debating about fixing the actual problem here. We let kids saddle themselves with debt, universities have a perverse incentive to keep marginal to bad students in the system, and when students can’t pay – the university has no liability and the student can’t declare bankruptcy on their loans.

I’m quite open to a student loan relief plan that is first passed by Congress rather than the continued thwarting of law and of the Supreme Court by the Biden Administration to buy votes ahead of an election.  But with that relief plan must come reform.  

Taxpayers may end up eating a bit of currently existing student loans.  They need not be on the hook for decisions made by willing young adults and culpable schools going forward.