COLUMN: Conventional wisdom is wrong about student debt | Jimmy Sengenberger | Denver Gazette
Joe Biden is flirting with a very big mistake. If the President unilaterally cancels $10,000 of student loan debt per borrower, the explosive student debt crisis will worsen – all under the guise of “doing something.”
Do not mistake yourself. With $1.8 trillion in outstanding student loans, we have certainly reached crisis proportions. The burden carried by 44 million Americans — the average graduate leaving school with $40,000 owed — is holding back homeownership and small business start-up rates. Decades of failed bipartisan government are to blame.
Growing up in the 2000s, my peers and I were constantly instructed to get a college degree in order to succeed. Meanwhile, the price of higher education rose as the promise of college crumbled – yet young people continued to take out student loans.
The conventional wisdom is that student debt has skyrocketed because tuition fees have gone up, but the reality is that tuition fees are so high because loans and grants are plentiful and easy to get.
For example, the Federal Reserve Bank of New York found that for every dollar a college receives in subsidized federal loans, tuition increases by 65 cents. They called this a “tuition pass-through effect.” In short, the proliferation of loans and grants has encouraged more spending on college education, especially because young borrowers don’t realize the costs until after they graduate and the bill comes due.
As Heidi Ganahl, regent of CU as a whole, wrote last summer, “Colleges and universities have positioned themselves well to benefit: Analysis showed four-year institutions received an additional $1,977 in tuition fees per FTE student in 2018 compared to 2010.”
If Biden cancels any amount of student loans, he will simply pour more gasoline on the fire while pretending to be a firebreak. “Again, it’s all about incentives,” I explained in Newsweek. “If current borrowers have their debt forgiven, it will lead incoming students to expect theirs to be forgiven as well. There will be every reason to take out more loans and for colleges to keep raising tuition fees endlessly.
Enough with the simplistic thinking about student loans and higher education costs. That kind of narrow-mindedness — that the solution is more student aid and student loan debt forgiveness — is what makes matters worse. Fortunately, there are better ways to move forward. In fact, some progress has already been made.
Employers now have a great opportunity to offer student loan repayment as a tax-free benefit to employees. In 2020, Congress approved similar legislation allowing employers to contribute up to $5,250 to an employee’s student loans tax-free. This provision was later extended to 2025.
Rather than activate Biden’s student loan forgiveness programs, Congress should make this tax-free benefit permanent. Amid a labor shortage and the need to provide competitive advantages to recruit workers, employers in Colorado should take advantage of the offer and be ready when the current student loan moratorium hits. finally up.
Congress should also extend a self-employed tax credit to repay up to $5,250 in student loans tax-free. These actions will ease the burden on existing borrowers who have to repay their loans without government assistance.
What about student borrowers who are deep under water? Rather than jail these debtors for life, Congress should relax bankruptcy laws to make student loan forgiveness more feasible. Unlike debt forgiveness, bankruptcy offers an exit with consequences, which in turn encourages more thoughtful decision-making.
What about tuition fees for prospective students? Restoring bankruptcy protection will help reduce the cost by restoring the lender’s risk, forcing them to be more careful and careful before taking out an unreasonable loan.
Colleges and universities also need skin in the game. Colorado’s congressional delegation is expected to propose legislation making higher education institutions liable for a percentage of losses on future loans that are discharged or defaulted.
Additionally, state legislators must fundamentally change the way the state funds higher education. In our previous column, Ganahl and I proposed funding colleges as a service rather than funding outcomes.
The legislature must reject the outdated fee-for-service model (under which states directly subsidize public colleges and universities) and instead favor more student choice, competition, and institutional accountability.
“Since July 2005, Colorado has offered College Opportunity Fund (COF) stipends, which assist qualified residents paying in-state tuition at participating undergraduate campuses,” we explained. “COF vouchers are already replacing a large part of direct, fee-for-service government funding. All things considered, it’s time for Colorado to finish the job and lead the country in funding students, not systems. Let’s move to a 100% grant-based public funding model, eliminating all direct subsidies and fostering much-needed competition for taxpayers’ money. »
By funding students rather than systems, Colorado will unleash competitive pressures and force higher education institutions to make many internal reforms.
Ganahl is now a Republican candidate for governor. In a recent interview on my radio show KNUS, she reaffirmed her support for our proposed reforms. Other candidates for governor and legislature are also expected to endorse this revolutionary model for funding higher education.
When it comes to student loans and college costs, progress has been made, but it’s not enough. Politicians always seem to need to “do something” regardless of whether their policies will actually work. Instead of just “doing something” about higher education, Colorado’s elected leaders must take the initiative to do the smart thing. Good things.
Jimmy Sengenberger hosts “The Jimmy Sengenberger Show” Saturdays from 6-9am on News/Talk 710 KNUS. He also hosts “Jimmy at the Crossroads”, a webcast and podcast in partnership with The Washington Examiner.