The Federal Student Loan System is to Blame for the Debt Crisis

David Acevedo

CounterCurrent: Week of 6/6

Most Americans—left, right, and center—would agree that college is far too expensive. Yes, some students attend low-cost community colleges or elite institutions which can afford to foot the bill for those that need it. But for the middle-of-the-road students, who represent the vast majority, there is really one option to get around the cost of school: loans, and in many cases, lots of them.

This hasn’t turned out very well. Indeed, we don’t just have a student debt problem, but a student debt crisis, one in which nearly 44 million Americans are on the hook for a staggering $1.5 trillion. In 2018, college graduates graduated with an average of $35,000 in debt, most of whom will take 20 years to pay it off. Some will never pay off their loans and will instead default, wrecking their financial futures.

Why is college so exorbitantly expensive, and why are so many students willing to take on excessive debt anyway? To address these questions, the National Association of Scholars recently published Priced Out: What College Costs America. In this report, NAS Senior Research Associate Neetu Arnold points to many factors that have increased the cost of college, including administrative bloat, the false idea that everyone needs a college degree, and a lack of awareness about what taking on debt really means in the long-run.

These are all indeed serious problems and need to be dealt with accordingly. But what if the federal student loan system itself is partially to blame? Do institutions feel at liberty to increase costs if they know that the federal government will subsidize student attendance?

This is what Neetu has argued in her follow-up work to Priced Out, most recently in this week’s featured article. She begins by discussing the controversial topic of student debt forgiveness, arguing that simply erasing student loans is no real solution to the crisis. Instead, we should eliminate the federal student loan system itself, which will force institutions to trim the fat and to make themselves affordable as they once were. She writes, 

If we eliminate the federal student loan system, we can begin to reimagine the future of higher education. The next generation of high school graduates could have multiple paths to financial and social prosperity, instead of being stuck on the one-way road of academic credentialism. Bereft of its rent-seeking opportunities through student loans, higher education would be forced to return to its core purpose of providing excellent education to academically inclined young Americans. And taxpayers would no longer have to worry about more of their income being taken to pay for the government's poor financial decisions.

It’s hard for many of us to imagine higher education without a federal student loan system. But then again, it’s hard for many of us to imagine a world in which college is at all affordable without taking on significant debt. As Neetu argues, to get there we must first remove government from higher ed finance and force schools to lower costs.

CounterCurrent is the National Association of Scholars’ weekly newsletter, written by Communications & Research Associate David Acevedo. To subscribe, update your email preferences here.

Image: Joshua Hoehne, Public Domain

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