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Perspective: Cancellation won’t solve the student loan issue

Student debt is a problem with deep roots. Lawmakers shouldn’t just snip the stems

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Illustration by Zoë Petersen, Deseret News

Spring is in the air, and my yard is waking up again. The roar of the lawnmower and the smell of freshly cut grass is bittersweet for my kids because they mean Saturday yard work returns. My kids are responsible for pulling up the latest batch of weeds, but if they are unsupervised, all I get is a pile of stems and they’ll be picking the same weeds next week.  Without addressing the cause of the issue, they’ll just grow back again and again.

Sadly, election-year governing is like my kids’ gardening efforts. It’s much easier to address the symptoms of the problem than to dig out the roots. Such is the case with the ongoing discussion around student loan forgiveness. Hard data and the best causal research show that college graduates earn more, have increased health, enjoy more stable families and vote at higher rates. College is a great investment, but it does have its risks and costs.  However, anecdotes and grievance politics cannot replace facts in policymaking. Here are the facts.

First, despite reports of students with astronomical loan amounts, most borrowers owe about $30,000 — the same as the average used-car loan. About half of loan balances are held by workers with graduate degrees (i.e., medical, law and MBA) and thus have the highest earnings potential. College is arguably the best way to set someone up for a middle-class lifestyle, but only 37% of taxpayers hold a college degree

Generally, policymakers should strive to invest scarce public dollars into either initiatives with the higher return on investment for the whole community or to help those in the most need. This is the classic efficiency versus equality trade-off. Student loan cancellation accomplishes neither of these goals. Instead, cancellation would channel public funds to those who are the best off in society, those who attended the most affluent colleges and those who have the highest ability to repay.

These facts don’t change the need for reform. Private student loan markets do not function well because education cannot be collateralized like housing or cars. It is impossible for creditors to seize your knowledge and skills. 

But access to student loans gives opportunities to those who would not have access to traditional financial markets. Recent research shows that expanding the student loan program would increase the number of students who receive degrees (and shorten the time it takes to receive them) and improve earnings for graduates. With wise use, student loans are a tool that pay off.

Difficulties arise when borrowers don’t graduate from college or enroll in programs (like for-profit universities or some college majors) that don’t pay off in the labor market. Life also is unpredictable. Job loss, family formation and career changes can all thwart the best intentions of repayment. However, the federal government has programs that if properly staffed, efficiently managed and properly funded can alleviate these problems. For example, income-driven repayment options (that would cap monthly payments to a percentage of discretionary income or pause during unemployment) are a mess. There is too much red tape to qualify and confusing options with varying terms. We could simplify the program and enroll participants by default.

We should also invest in those who choose public service after college. Military service comes with the GI Bill, but the country needs schoolteachers in impoverished areas, physicians in rural communities, public defenders and talented managers in government.  While public service loan forgiveness does exist, it is such a low priority that the previous administration approved only 1% of applicants. 

Currently, borrowers cannot discharge student loan debt in bankruptcy because it is hard to show an “undue burden” when a college degree increases earning potential. However, Congress could amend the code to allow discharging for students who attended colleges closed for fraudulent practices or nongraduates whose loan payments far exceed ability to pay after 10 years.

Finally, we could expand the Pell Grant program and simplify the accompanying convoluted application process that causes thousands of students to leave billions of dollars on the table, or states can replace funding cut during the last recession.

Our universities are the envy of the world and access to them is increasingly one of the best investments that young people can make in themselves. Student loans can be a way to help those traditionally underserved by higher education access its benefits. These programs desperately need reforms, but resources, public attention and lawmaker concertation are all scarce commodities. Policymakers would be better off going after the roots of the problem rather than just clipping the stalks.

Michael S. Kofoed, @mikekofoed on Twitter, is an associate professor of economics at the U.S. Military Academy and a research fellow at the Institute of Labor Economics. A Utah native, he holds degrees in economics from Weber State University and the University of Georgia. His opinions are his own and do not represent the U.S. Military Academy, the Department of the Army or the Department of Defense.