Education Secretary Betsy DeVos just froze student loan repayments for sixty days, as part of the coronavirus bailout. I’ve added my own suggestion to freeze the repayments until the end of the year. Student debtors have gotten massive financial relief, before a single federal bailout checkout arrives in a university’s bank account.
DeVos’ decision to give priority to indebted college graduates makes sense. They’re in desperate shape.
America has long suffered from catastrophic levels of student debt. Student debt now totals more than $1.64 trillion. 44.7 million Americans have student loan debt, the average student debt is $29,900, 69% of college students have taken out college loans, and so have 14% of their parents. 11.1% of student loans are 90+ days delinquent, or in default.
A generation of Americans has had to postpone marriage, children, and buying a house until their debt has been paid down. Far too many Americans have chosen to pay off their children’s student loans instead of saving for their own retirement. Demagogues such as Elizabeth Warren now aspire to office by offering indebted Americans’ other people’s money, to pay off their student loans. The ball and chain of student debt carries with it a generation of pinched expectations—and the wild, bitter hope that one might win free by the alluring prospect of picking one’s neighbor’s pocket.
The incentives of federal grant and loan support for college students’ tuition bear a substantial portion of the responsibility for the student debt crisis. The federal education subsidy goes to colleges, but the risk and the debt go to college students—who cannot even discharge their debts by bankruptcy, as they could with any other form of debt. The government and colleges woo eighteen-year-olds to go into debt, when they have neither the experience nor the maturity to judge how bad a decision they are making. Conflicting federal mandates to colleges to work for both educational access and student retention marginally reduce the number of college dropouts with sizeable student loans—but increase the number of ill-educated BAs with massive student loans and no prospects of landing a job with enough of a salary to pay back their student loans.
The long-term solution requires colleges and universities to assume partial responsibility for student loans, so as to give them an incentive to cease admitting students who will be unable to repay their loans. A general reduction of subsidies for student loans would also make sense, since the government’s encouragement of young Americans to go into debt makes them little better in their effects on student finances than payday loan centers.
What in the short term, though, as students in pandemic-stricken colleges struggle to connect to their classes via computer connections? In addition to freezing student loan repayments, the government should link student loan forgiveness to service in selected job sectors—the sorts of work that help America endure the coronavirus now. Make it the latter day equivalent of the first G.I. Bill, but targeted to help nurses and paramedics, emergency medical technicians and engineers converting factories to produce medical ventilators. We could add further student loan relief for students and graduates who take jobs that will help the American economy recover when we are released from our locked down homes—whatever emergency employment is needed to supercharge our recovery.
Debt forgiveness for nothing amounts to taxing the prudent to support the imprudent—but using debt forgiveness as a tool to spark an economic recovery is good economic sense.
David Randall is Director of Research at the National Association of Scholars.