For many young adults, the most depressing moment of the tax season is reading their Form 1098-E, their Student Loan Interest Statement, which reminds us how much money we paid in interest last year (and how big our debts are — and how impossible repayment seems).
Across the country, more than 40 million Americans hold student loan debt. The average loan is approximately $30,000, but all together, America’s student loan debt totals more than $1.3 trillion and grows by $2,726.27 every second. This is not just a personal problem for households like mine; it has become a national crisis.
Sadly, the only politicians who seem to be focusing on the student debt crisis are offering misguided, big-government solutions. Debtors need to hear the other side of the story when it comes to college debt and college costs, and they need to hear alternative solutions.
It’s easy to see how debt is crippling our economy, by keeping too many young adults on a financial treadmill. Student debtors are unable to fully participate in the economy as consumers, investors and business creators; many report putting off major life milestones like marriage (29 percent), starting a family (43 percent), or buying a home (75 percent) as a consequence of their outstanding student debt.
But what’s harder to see is how we got here. Obviously, high student debt is the result of high college costs. In just one generation (30 years), the cost of attending private and public colleges has more than doubled after adjusting for inflation.
Why has college gotten so expensive? One common but flawed narrative is that public support for college has dwindled, forcing educational institutions to hike tuition prices for students and families. In reality, government education benefits (like direct aid, special loan programs and scholarships) have tripled since 1990, but rising aid has corresponded with rising tuition costs, feeding a vicious cycle.
What we have seen in college costs is a classic example of what economists call “subsidy capture.” The federal government took over student lending in 2010, making it even easier than before for students to access low-interest loans. Colleges — wise to the fact that more customers could afford what they are selling — accordingly increased tuition and “captured” the help that was meant for students. Students were stuck paying the tab after all, even if loans delayed their payment.
Ironically — and sadly — the same groups and politicians who supported this government takeover of student loans are now calling for even more government intervention into higher education with two proposals: to forgive student loan debt and to make college tuition-free.
Student loan forgiveness sounds like a Houdini-type escape from the bonds of debt, but would result in serious consequences. Aside from the public cost to taxpayers, forgiving student debt would result in egregious unfairness to the many borrowers who made responsible decisions to avoid, minimize or pay off their debts: They chose to attend more affordable schools over more prestigious ones, worked part-time during college, or otherwise lived frugally to pay down their debt. To forgive student debt would be to reward irresponsible choices and punish responsible ones.
Tuition-free college likewise sounds like an enticing idea, but various studies show that reducing the price of college to zero (i.e., shifting the cost of college onto taxpayers) significantly alters students’ incentives. Tuition-free college may increase enrollment in college, but not graduation rates. It would change colleges’ incentives as well, making schools even less cost-conscious and less focused on maximizing value for students.
Instead of more government involvement in paying for college, we need to return to a system that puts students at the center and relies on market forces to set and control prices for tuition and loans alike.
Policymakers should give students more options for higher education through accreditation reforms and expanded access to online and competency-based learning programs. This would force traditional colleges to compete on price. Schools should also be held accountable for value: If colleges have high levels of defaulting borrowers, those schools should shoulder some of the financial burden. Lenders should also be able to compete to offer borrowers the best interest rates for each loan.
For those who already face debt, economic reforms can foster a stronger jobs market and healthier wage growth to aid us in repayment. Furthermore, employers should be free to offer loan repayment as a tax-free, on-the-job benefit, as they can do with tuition now.
Big government got us into this mess; it isn’t the right solution to help us out. We need to restore competitive forces to the college marketplace, which will result in lower prices, greater access and higher quality for everyone.
• Hadley Heath Manning is a senior policy analyst for the Independent Women’s Forum.