Solving the Student Loan Crisis

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4 mins read

All around, the debate rages. What can be done about the student loan debt? If you’re keeping track, right now the US government owns 1.4 trillion dollars in student loan debt.
The first thing that you must realize is this money is never getting repaid. It’s owed by people who do not have the earning power to repay it. Much of it is owed by college dropouts that never earned a degree. A great deal is also owed by people who have completely useless degrees that offer no financial benefit.
What we have is a 1.4 trillion dollar boat anchor holding our economy down. So how do we cut that anchor loose?
Step 1) Across the board universal debt forgiveness. Period. All government debt is forgiven. That would account for 1.2 trillion of the 1.4 trillion dollar total. That would give about 37 million people an extra 400 bucks a month. That would be a 14.8 billion dollar boost to our economy… every month.
Step 2) Force universities to qualify for student loans. The biggest issue today is university washouts. Kids who enroll, but do not graduate in 4 years, make up a big part of this problem. And colleges are complicit. Most state schools have 4 year graduation rates in the 35% range. That is completely unacceptable. So to solve this problem, any school with a 4 year graduation rate that is less than 75% would no longer qualify to receive student loans. This would force universities to be more selective about who they accept, and it would force them to focus more on actually graduating students, rather than just exchanging money for luxuries like super fancy dorm suites and indoor snow skiing facilities.
In addition to this new requirement, student loan default rates should also be tracked by school, and schools that have a default rate that is too high should be excluded from the federal student loan program.  These two requirements seem subtle, but in reality, would completely remake our entire higher education system.   Schools could no longer afford to push useless degrees that had no real world monetary value.  Say bye bye to Women’s Studies.  It would also force schools to stop bulking up their graduation requirements with idiotic filler courses and get them back to focusing on what actually matters.
Now… I know… it’s not fair to just up and forgive all that debt. I mean you worked hard and repaid your debt right? Don’t you deserve something too?
No. You don’t. Shut up. Literally the whole country will benefit greatly from implementing this plan simply by the fact that the economy would skyrocket.
This is not a hard plan to wrap your head around. You discharge the federally owned debt… which can be done by Congress. And then you require all colleges to maintain a 4 year graduation rate of at least 75% in order to qualify for the federal student loan program. President Trump could accomplish that part with a simple phone call.
This needs to happen. It’s a moral thing. It’s the wise thing. It’s the economically smart thing. It’s the politically smart thing.
Let’s get it done.

13 Comments

  1. With all due respect, Mr. Lector, while I agree with your premise… point #2 will not work. At all. As a professor in higher ed, I can tell you the day after Congress passes a bill requiring schools to meet certain criteria (like >75% 4 year grad rate), the (few) professors that demands students learn something will find themselves on the street. I am a 10+ year veteran of this system, and I know that money is the ONLY thing the administration is interested in. If any (even tenured) professor or staff member (who would be hired to follow the student loan default rate) threatens that cash-flow, they will be disposed of, by any means necessary.

    • And then what happens when those students that were rubber stamped all start defaulting because of the second part of that change?
      The school is kicked out of the federal loan program and dies.
      Lots of schools manage to maintain a very high graduation rate. The schools will figure it out or they will die. A nation with fewer universities is nothing that I am going to lose sleep over.
      Now… Obviously this could not be implemented over night. schools would have to be given a chance to rework their systems to comply. So I would say we would implement it now… but not actually making schools qualify until 2025.

    • “I am a 10+ year veteran of this system, and I know that money is the ONLY thing the administration is interested in. ”
      I agree with this statement completely. Now… how much money will the administration have available to them if they lose access to all those student loans?
      none. The school dies.
      They will bend over and take it. Or their schools will simply die.
      I’m fine with either. Or both.

  2. NO. Forgiving loans will just encourage everyone to expect more government welfare. How about I stop paying taxes and forgive that! Medical debt is a problem too.
    Will this include student loans to Illegal Aliens too?
    Why not forgive all those in prison from violent and other crimes! Won’t adding them back to the economy make it shoot up? How about all those sick people having trouble working – we need single payer universal healtcare to make the economy shoot up!
    The proper thing would be a change to bankruptcy law that every 7 years, for 1 year, ANY and ALL debt can be discharged in bankruptcy – with the ding to the credit, but that won’t prevent proper collateralized loans. You would be stripped of extra assets and lose things but you could start then with zero debt. That would be fair.
    End the FEDERAL student loan program, but REQUIRE the universities to use their own HUGE endowments as the capital being loaned out. I’d even leave the nondischargability after this. Right now Harvard has billions ruining the economy via wealth extracting Bain Capitalism hedge funds.
    “No. You don’t. Shut up. Literally the whole country will benefit greatly from implementing this plan simply by the fact that the economy would skyrocket.”
    I thought MotW was a place for civil conversations. And that there was more to life than materialism, i.e. the Economy. Will such forgiveness make these people better human beings? More responsible? Prudent? Industrious? Thrifty? Or will they just get a credit card, max it out, and be a debt slave to a different entity?
    No, the Debt will be transferred to the Taxpayer – it will happen anyway, and it will enforce the bailout, welfare, Nanny big government will make everything better! You don’t have to work, you don’t have to save, hey, wouldn’t the universal basic income be even better? They could use that to pay off the student loans!
    The crash will just be that much worse when the debt pyramid collapses. The Economy woudn’t skyrocket, but it might delay the day of reckoning a bit.
    Better yet, lets tax you and all the hard working Americans extra to pay back the “forgiven” debt, then they can be double fools.
    You can summarize the current problem with America simply: Those who are irresponsible, lazy, and otherwise show no virtue are lauded, celebrated, subsidized, and encouraged. Those who are industrious, thrifty, responsible are attacked, taxed to death, derided, and are treated as fools already for working so hard and doing the right thing.
    Your proposal is perfectly consistent with the complete cultural destruction of America. Perhaps you should have said you are an accelerationist and want us to become Venezuela that much sooner.

    • TZ.. you’re too smart for this kind of mindless jabbering. The debt is never going to be repaid. Those who owe it cannot repay it. So its not a matter of morality. The fact is… this debt is the result of massive fraud.
      So tell me… is it a moral hazard to make a victim of identity theft whole?
      And honestly we’re not even actually making the fraud victims here whole. We’re simply allowing them to stop paying the organizations that defrauded them.
      Pull your head out of your ass. You really think the 35 year olds that have been shackled by this fraudulent debt their whole lives don’t know the consequences of their actions? Please.
      its time to live in reality. We have a debt based economy and a giant part of the population that cannot borrow or really participate because of this boat anchor of fraudulent debt. You bring up Venezuela. I have some bad news for you. Writing off this debt is the ONLY THING that will prevent us from becoming Venezuela. Our economy is falling apart. This is the shock that will revive it.

  3. Some total forgiveness, like the one recently announced by Trump for disabled veterans, are great. But across-the-board will simply make the schools jack up prices even more, and encourages even more borrowing and wasteful spending. But having them discharged in bankruptcy (or at least cap total repayment to principle only so the interest doesn’t eat them alive), will help a lot. Capping federal guarantees according to major and expected post-graduation earning rate in the field will discourage useless degrees in the first place. (example: an engineering degree might be supported up to $45k loan per year, a social work degree only $10k per year, because expected incomes and job demands are so different). Also, making the educational institution pay part of the cost for a defaulted loan (because their degree isn’t worth enough to pay it off) would make them make loan more wisely.
    If you require a certain 4-year graduation rate, schools will simply lower the bar as far as needed to comply. It has to be couples with continuing to create graduates that can prove some reasonable level of ability commensurate with the degree.

    • They can’t lower the bar. if they lower the bar their graduates will be unqualified and will fail in their jobs and will default. which will cause the school to get kicked out of the system.
      What you people don’t realize is this is already how it works in the medical school world. Thats why it is hard to get into medical school. and its why so few medical school students wash out.
      You keep saying it won’t work… while it has been working well forever.

    • additionally… the majority of drop outs simply don’t go to class. there is no low enough standard where they will pass. and if they drop to low… they will lose their accreditation.
      I realize these numbers seem harsh. and I am not at all surprised that there is pushback from education types. But we have been listening to education types tell us all of their great (and very expensive) ideas about what we need to do for far too long. We’ve tried it the way they want. It has failed. It has failed completely.
      So its time to go back to the old way.

  4. Lector is correct. You naysayers are not only wrong, you’re idiots.
    I’m a millennial who DID EVERYTHING RIGHT (except that I dropped out when I realized I didn’t need a degree), and I support this solution. Because my peers cannot repay. It isn’t that they don’t want to, or aren’t trying, but they were defrauded. They were told that it didn’t matter what degree they had, just that they had a degree, and their future was pretty much in the bag. I was told much the same. It wasn’t hyperbole. It was fraud. I was smart enough to see through it, but I’ll be damned if I’ll hold that over people who weren’t. They got scammed.
    When you are told that all you need is literally any degree, are you going to go for the most difficult, demanding track possible? Or are you going to go for something relatively easy and yet at the same time interesting to you personally? It’s not that hard. That’s why so many people have useless degrees.
    Millennials did not appear as snowflakes in a vacuum. The behavior was learned. It was learned from boomer parents and (yeah, I’ll go here) gen-x siblings. Forgiveness is good not because it’s ideal, not because von Mises, and not because of anything else except that my generation was systematically defrauded, and while I readily criticize us, serfdom is not the correct solution to my generation’s problems. That will only get you more people in favor of AOC and the like. You really don’t want that. Neither do I. Forgiveness is only good because it is the least bad out of a number of far worse outcomes. And you pound-foolish naysayers don’t understand the harsh realities involved.
    Remember: none of this would be an issue if The Ultimate Boomer Clinton hadn’t been allowed to disable bankruptcy of student loans. You’re partially to blame for that. So help fix it or die.

  5. The reply button may not put this inthe proper context, but I will quote.
    “The debt is never going to be repaid. Those who owe it cannot repay it. So its not a matter of morality. ”
    No, many things cannot be undone like raping a virgin or murder, but that doesn’t make it NOT a matter of morality. The stupidity may not have been fully intentional, but some people can only learn not to play with fire by being burned. I wish them at least scorched at the margin. Nature itself is far more cruel.
    If you can extract assets from the criminal to make a victim of ID theft whole, yes, do it.
    I will note you did not separate the principal from the interest and penalties. If you suggested a result where they didnt have to pay anything except the principal back I would agree, and assuming you could claw back part of the principal from the evil college, that should not have to be paid. (I would assume 100% forgiveness for a bankrupt and closed college)
    More insults. But someone who did something stupid at 18 who knows better at 35? Should those who were defrauded when they were stupid and vulnerable (they can’t legally drink alcohol) have to two decades later bear full responsibility? Fine. Any 35 year old who takes out a student loan shoudl not be forced to repay it. Men aren’t fully mature until their mid ’20s, so lets forgive all debt attached if it was incured if they were 24 or younger.
    Our Debt Based economy is unstable and will collapse.The Student Loans will be written off when everything collapses, but the world afterward will be far worse than you and they are anticipating.
    Beyond that, another comment agreed with the principle. OK, then YOU, PERSONALLY pay off soemone else’s student loan. That is the key error. 3rd parties. Lector doesn’t want to pay out of HIS pocket. He wants the magic cash fairy to make things whole. MMT. Keynes on steroids.
    This is merely all the evil of the Democratic nominees’ plans for “free college” retreoactively, but worse, to screw the responsible people who paid it back.
    There is no free lunch nor free college. Let Lector create a scholarship fund if that is what he wants, but not force taxpayers to fund college, even by retroactively giving free tuition to deadbeats and not refunding the honorable.

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