The Biden administration was eager to roll out its student loan forgiveness plan in hopes of delivering at least one campaign promise. But just days after the 2022 midterm elections, a federal judge in Texas ruled the loan forgiveness was illegal. And last Monday, the Eighth Circuit Court of Appeals in St. Louis banned debt cancellation nationwide. The government has stopped accept requests for loan relief, leaving borrowers in limbo.
President Joe BidenThe loan forgiveness plan was to forgive up to $20,000 in student loans for Pell grant recipients and $10,000 for non-Pell borrowers. The administration bypassed Congress and relied on the “national emergency” of the coronavirus pandemic to justify the jubilee (even though Biden himself admitted the the pandemic was over after announcing its loan cancellation plan). For many court case were filed to stop loan forgiveness.
The whole situation has upset borrowers. But really, no one should be surprised by this roadblock. The legal foundations for loan forgiveness were shaky from the start. The Biden administration could still resume loan forgiveness if its legal appeals are successful. But what would that solve? Outstanding student debt will simply return to current levels by 2028. Recent decisions in Texas and the Eighth Circuit demonstrate that solving the debt problem through executive action is not a viable option. Instead of band-aid solutions like partial debt forgiveness, we need fundamental legislative change from Congress to stop students from engaging in the excessive borrowing that is causing the crisis. .
The current discussions regarding loan forgiveness frustrate all parties. The government is giving false hope to borrowers by dangling the carrot of loan forgiveness; meanwhile, many Americans don’t want to be responsible for other people’s debts. While this back and forth is ideal for statesmen looking to score political points, it does nothing to explain why students are struggling to repay their loans.
The most obvious reason for the student debt crisis is the high cost of college – tuition has nearly tripled since 1980. Many have noted this fact, but there are small agreement as to the cause. The establishment of higher education calls into question the decline in state credits. Others claim that college prices have risen due to rising faculty salaries. And still others claim that a college degree costs more because it is that much more valuable – a claim that is questionable at best. But none of these theories answer the fundamental question of how students and their families manage to “afford” the price spike: the ease of access to federal student loans. It was the federal student aid system itself, an effective subsidy to the higher education industry, that drove the price hike.
Additionally, universities use deceptive marketing to portray their graduation rates as higher than they actually are. Four-year universities often tout their six years graduation rate. But students applying to these universities probably expect to finish in four years. And this rate is just around 45 percent. Some students drop out and do not receive the financial benefits of a college degree. Others change school programs and may incur higher education costs than originally planned because they stay in school longer or to change in the majors with a low return on investment. Students may take on more debt due to unexpected additional education. And those who go to work in areas with a lower return on investment are less likely to recoup debt.
Over the years, the government has relaxed loan requirements to increase students’ accessibility to loans. But access to something without sufficient merit is a disaster.
Current popular policy suggestions for solving the student loan crisis include taxation price caps on universities and cancel student loan interest. These two prescriptions circumvent the problem. Seventeen states have applied academic price caps to public institutions in the past. The prices of vignettes in these institutions have decreased accordingly. But colleges have many levers they can adjust in response to policy restrictions. In general, they ended up reducing institutional aid for needy students to compensate for lost income from tuition fees. Even the private universities in these states, which had no cap on tuition fees, have reduced their institutional aid.
Eliminating interest on student loans would be extremely costly, as we have already seen. It cost the Americans $155 billion stop collecting interest during the pandemic payment pause – and that was meant to be a temporary measure. A permanent interest rate of 0% would not only cost us money for existing borrowers, but would also encourage more students to borrow. Moreover, it would encourage borrowers to delay repayments and allow inflation to eat away at their loan balance.
Instead, lawmakers should impose stricter standards on federal student loans. These loans should be conditional on the economic return of the diploma and the academic merit of each borrower. Public funds should come with public accountability. Conditioning loans on a student’s future earning potential would be an indicator that taxpayer funds are being put to good use. Under such a system, computer science majors would receive a higher borrowing limit than, say, art history majors. We want to encourage students to enter in-demand and profitable fields, and discourage them from overspending on education in a field that is unlikely to recoup those costs.
Consideration of a student’s academic record before entering university is also essential to prevent dropping out of university due to poor academic preparation. A student may intend to enter a highly profitable field, but low academic qualifications indicate a high likelihood of dropping out or moving on to an easier major.
These reforms would prevent future student debt crises. Borrowers who still want their loans canceled should hold higher education institutions to account, rather than taxpayers. After all, the debt crisis wouldn’t exist without the university’s decision to admit the student. And it is the choice of the university to charge the tuition fees it does.
Neetu Arnold is a Senior Fellow at the National Association of Scholars and a contributor to Young Voices. Follow her on Twitter @neetu_arnold.
The opinions expressed in this article are those of the author.