College Loan Debt Forgiveness: Is There A Moral Hazard?

Honk if you don’t want to pay for somebody else’s kid’s education.

Let me be brutally frank: I didn’t sit in on the millions of family conferences across this great land where decisions about higher education were made, and so I don’t feel the slightest inclination to pick up the tab for other people’s choices.

That is why the calls to simply forgive college debt anger me. Here's the thing about debt forgiveness: It doesn’t mean that tuition, room, and board weren't consumed; it simply means that taxpayers, not the consumers themselves, will ultimately pay. This isn’t fair.     

Of course, we should all be concerned about young people who emerge from college with crippling debt. (It is ironic that inexpensive, government-backed loans may actually be a contributing factor in the explosion of the cost of an education.)

As Alana Goodman of Commentary’s Contentions blog observes, President Obama’s college loan plan, which will be unveiled tomorrow (specifics in today’s Wall Street Journal), is not as radical as we may have feared. Goodman says it's mostly a political gambit so the president can say he checked off the college loan box.

But there is moral hazard in the President’s plan:

But the plan also has problems from a policy angle. Increasing the number of student loans that will be forgiven without full repayment is both a moral hazard (by encouraging risky borrowers to enter the system) and an additional burden on taxpayers. It’s also another step toward total forgiveness of student loans, which is one of the top demands from Occupy Wall Street activists. That idea doesn’t go over as well with most Americans, who oppose the deal by 66 percent, according to a Rasmussen poll out today.

To address the matter of college loans, we really need to be asking why college is so expensive. Do kids derive value commensurate with the cost? Should more or fewer people attend college?

In his new book, After America, Mark Steyn says that “education is the biggest single structural defect in the United States,” and adds that “no functioning state can afford to keep its kids in school till they’re twenty-two.”

Always original, Steyn notes that, when the United States had its most dynamic years, when the automobile was invented and Tin Pan Alley was thriving, most people had decent educations but did not have college degrees:

Eighth Grade America won a world war, and emerged afterwards as an economic superpower that dominated the post-war era until Eighteenth Grade America sleepwalked it off the precipice.

I value my B.A., and I’m not against higher learning. I’m just saying we need to ask some very basic questions about education and its costs.