The $1.5 Trillion Student Loan Debacle That U.S. Taxpayers Are on The Hook For

$1.5 Trillion. That’s how much money U.S. students owe in higher education debt in this country.

It’s a number that has crept steadily higher, ballooning in recent years as more and more Americans chose to attend college. Both President Trump and former Vice President Biden have proposed solutions to forgive some of these debts in various ways–and this leaves those that worked so hard to pay them off, questioning the fairness of such proposals.

Mr. Trump is proposing $25 billion to help forgive student debt levels and wants to modify the income link program currently on the books. He would have borrowers pay 12.5% of their discretionary income—defined as adjusted gross income minus 150 percent of the federal poverty level—for 15 years and then have any debt forgiven. (Currently, borrowers who opt for income-driven repayment plan pay 10% of their income for up to 20 years—for undergraduate debt—and 25 years for graduate-school debt.) In addition, he has invoked an executive order to currently enable borrowers to halt payments, without accruing interest, until December 31st of this year.

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Mr. Biden, meanwhile, is offering to flat-out cancel $10,000 of every federal loan borrowers’ balance as a kind of coronavirus aide relief effort.

In addition, for households earning less than $125,000, Biden wants to wipe away undergraduate debt for tuition at public colleges and private colleges that predominantly serve minority students. Those families would still have to pay money borrowed to pay for living expenses, however.

The real answer is to reform higher education so that it is not so costly in the first place.

Perhaps the biggest problem with the cost of higher education in the United States is that the U.S. has attempted to marry two economic systems; there’s a capitalist side to the education equation yet, it’s hindered by a socialist approach. Indeed, an already expensive product is made uber-expensive through the supplement of government funds which enable students and families to borrow huge sums, thereby allowing schools to increase costs with little restraint.

In the past ten years, the cost of a college education has grown at four times the rate of inflation. This is, in part, because the government bankrolls these schools through Federal funds, enabling students to qualify for loans and grants. Simultaneously, the demand for education has skyrocketed as society increasingly expects students to attend a four-year college. As such, this demand, coupled with plentiful loans and grants, provides these incentives for massive inflation.

The New Subprime?

The market for loans is massive – and, in many ways, eerily similar to the subprime lending crisis that led to the financial meltdown in 2008. Loans are being made irrespective of income, intelligence, college major, etc. ie they’re similar to the no-income, no-asset “NINA” loans that proved so disastrous 12 years ago. And while it’s wonderful that Americans can access these opportunities, questions remain as to whether or not these “opportunities” really are everything they’re cracked up to be.

If you graduate from school, with a degree in philosophy, are you equipped to earn a living? OR, have you merely ensured that you’ll be stuck paying back loads of debt for having read a bunch of books you could have read on your own? And, if so, what is the real goal of education?

It hardly seems fair that we’re saddling so many young people with debt. And, it’s hardly fair that parents are taking out loans to finance their kids’ educations at a time when they s

Few 18-year-old kids have any appreciation for what $400k in loans even is… and that’s not entirely their fault. Our education system has refused to teach home economics, which is a tragedy. While the left worries about whether to refer to Indigenous People’s Day or Columbus Day, our students don’t understand what an “APR” is on a credit card, don’t know the difference between the equity and bond markets, and don’t have a clue how to set up a business or access a mortgage.

Understandably, no 18-year old is out there asking the college “what’s my expected return on investment?” Meanwhile, parents too often tend to feel an emotional obligation to put their children on the best “path.” Financially, however, it may not even be the best path for the family.

Education is not one size fits all…and, it could be argued that that same $400k that is being put into college, would be financially (I emphasize financially because there’s no real way to determine the emotional value of college, which for some, is not insignificant) better off in the markets or being deployed as capital to start a new business.

Nonetheless, the real question is; how can we invoke more market discipline in the field of education? We could start by not bankrolling the schools.

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