The Student Loan Fiasco
On March 30, 2010, President Obama made a series of statements as he signed the final piece of the Health Care and Education Reconciliation Act of 2010. Most notably, regarding higher education student loans, “By cutting out the middlemen, we’ll save American taxpayers $68 billion in the coming years … That’s real money – real savings that we’ll reinvest to help improve the quality of higher education and make it more affordable” (Ref.1). Many millions of Americans saw this as an opportunity and have borrowed vast amounts. As of September 2023, total outstanding federal education loans amounted to $1.74 trillion, with average individual debt being $55,347 (Ref.2). But, instead of making $68 billion, the federal government so far has lost $200 billion; it will be over a $1 trillion if, as some have proposed, all loans were canceled (Ref.3,4). Also, with the addition of these federal monies devoted to higher education with a limited increase in supply, costs increased 200% over the past 20 years, far exceeding inflation (Ref.5).
The concept of the government trying to make a profit by taking over education loans to help afford a healthcare plan was based in part on the false idea that practically everyone should attend college. There was no thought of how a sudden increase in higher education demand would affect costs.
Does Everyone need a college degree? For the past few decades, many have proposed that everyone needed a college degree for financial gain and that, somehow, the “government” should make this possible. This, in part, came from the success of the GI Bill of Rights, which provided funds for higher education after WWII and the ensuing benefits to our society. What is forgotten is that only a small fraction, 15-16%, of veterans graduated from higher education facilities (Ref.6). Perhaps the benefits to society accrue when a fraction of the population seeks higher education.
Now, however, there is a seismic shift of opinion, with almost 70% of parents wanting their children to seek an apprenticeship or other employment after high school. They believe that for the general population, graduating from college does not ensure higher incomes. Additionally, costs are prohibitive, necessitating excessive borrowing (Ref.7).
Why had there been these dramatic increases in the cost of higher education? The largest factor at the time was the expansion of the federal loan program, which increased higher education demand with accreditation difficulties limiting an increase in supply. Other factors include rising administrative costs required by increased federal reporting requirements, making up for pandemic losses, and trying to address decreasing applications by adding pricey amenities that also increase costs. Apparently, improving the quality of education is not a priority.
Can the Federal Government run a money-making enterprise? How long would it take for politicians to succumb to the pressure of millions of students who want their loans minimized or forgiven? Not Long (Ref.8)
In conclusion, college is not for everyone, and middle-class incomes are readily available to millions through various trades. Those with the inclination and potential to benefit from formal higher education should be able to do so regardless of the ability to pay. A responsible government plan is needed. A suggestion would be to make sure the college/university has “skin in the game” by directly providing the monies for the loan, perhaps with the government guaranteeing 50% to the college/university in case of default.
- Obama Signs Student Loan Overhaul Legislation, ABC News, March 30, 2010, available at: https://abcnews.go.com/WN/Politics/health-care-obama-signs-student-loan-overhaul-legislation/story?id=10239569
- Eliza Haverstock & Anna Helhoski, Student Loan Debt Statistics; 2024, NerdWallet, February 5, 2024, available at: https://www.nerdwallet.com/article/loans/student-loans/student-loan-debt#:~:text=U.S.%20student%20loan%20debt%20totals%20%241.74%20trillion%20as%20of%20September%202023.&text=Eliza%20Haverstock%20is%20NerdWallet’s%20higher,college%20affordability%20and%20student%20loans.
- Zack Friedman, Student Loans Will Cost Government $200 Billion Loss, shocking Report Says, Forbes, July 31, 2022, available at: https://www.forbes.com/sites/zackfriedman/2022/07/31/student-loans-will-cost-government-200-billion-loss-shocking-report-says/?sh=25422c564910
- Zack Friedman, Student Loan Cancellation Could Cost $ 1 Trillion, Forbes, November 1, 2021, available at: https://www.forbes.com/sites/zackfriedman/2021/11/01/student-loan-cancellation-could-cost-government-1-trillion/?sh=335441554c2a
- Tomas Chamorro-Premuzic & Becky Frankiewicz, 6 Reasons Why Higher Education Needs to Be Disrupted, Harvard Business Review, November 19, 2019, available at: https://hbr.org/2019/11/6-reasons-why-higher-education-needs-to-be-disrupted
- National Archives, Service Men’s Readjustment Act (1944), Milestone Documents, May 3, 2022, available at: https://www.archives.gov/milestone-documents/servicemens-readjustment-act
- Mark C. Perna, Why Parents Now Say A Good Career Matters More Than A College Education, Forbes, June 6, 2023, available at: https://www.forbes.com/sites/markcperna/2023/06/06/why-parents-now-say-a-good-career-matters-more-than-a-college-education/?sh=303c725a1b0c
8. Anna Helnoski, 10+ Student Loan Forgiveness Programs That Discharge Loans, NerdWallet, March 1, 2024, available at: https://www.nerdwallet.com/article/loans/student-loans/student-loan-forgiveness
If only there was a program where education can be paid for while one performs a service to the country. Huh what a concept. Obtain an education, learn a trade or profession while serving. Too bad no one has thought of this yet.
Oh one other thing. My college friends who went into the professions paid off their college loans years ago. Said the
interest rates were ridiculously low. Plus by paying off the student loans their credit rating soared whether they needed it or not. An unpaid student loan is going to haunt a person forever. Well, if they stay on the gubbermint dole it doesn’t matter!!! You, I and the taxpayers are going to be paying and supporting them.
Ahhhh, I wasn’t given a choice by my late great dad. He said to me when I was 15 that he didn’t care what I did but I was going to college and he and my mother were going to pay for it. They kept paying, paying and paying but in the end, judging by the party they threw for me after I graduated from med school they were very proud. Saw neighbors and friends I haven’t seen since then (alot are probably dead by now) and had a decent career and retired.
Oh the state med school was cheaper than the private Catholic college my dad chose for me to go to.
I was able to pay for several semesters in med school actually but dad picked up the tab later. I had a nice small apartment that cost initially $125.00 a month and a garage for my car! Those were the days in the late 70’s.
Pat, Thanks for taking the time to comment. Certainly, we need an educated population, how to accomplish that is open to serious thought. Ken
A good start would be to eliminate all majors ending in “studies” (health studies, AsioAfrican studies, gender studies, etc. etc.) Very few kids who start with these majors end up in any type of gainful employment, almost none of them in the field they chose to study.
There is absolutely no provision in the U.S. Constitution for education – or residency funding ! – as well as for the other 90%+ garbage that the federal government does, especially health care. That school loans and post-graduate medical education is a complete and worsening mess is directly due to the U.S. government engaging in activities for which it is foundationally unequipped. No news there.