Economist Peter Schiff recently did a thought-provoking podcast on the roots of the current student loan crisis.
Student debt is one of the biggest issues facing millennials and other young voters based on the magnitude of the burden. Take, for example, the total cost of outstanding student loans in America. In 2009 they sat at a whopping $675 billion. Pretty hefty, right?
Given the U.S. government’s intimate involvement in the student loan business and the desire of the political class to treat education as a human right, more people have been encouraged to take on loans, irrespective of their potential college degree’s usefulness in the workplace, or their future earning potential. So, it shouldn’t shock anyone that student loan delinquency was near 10 percent in the first quarter of 2019.
To make matters worse, Americans now owe more than $1.5 trillion in student loan debt, which represents a more than two-fold increase from 2009’s total. To put this in perspective, this is more than outstanding credit card balances and is second only to mortgage debt in terms of consumer debt.
Student debt has become so large that neither party can avoid the issue. However, recognizing a problem does not necessarily guarantee that a sound solution will follow. Just look at what several 2020 Democratic presidential candidates, like Bernie Sanders and Elizabeth Warren, are currently proposing. The former wants to provide “free” college education, while the latter wants to forgive student debt. Both cases involve the government stepping in to try to “fix” these problems — ironically the same entity who caused the problems in the first place.
For starters, there will be no such thing as “free” college given that taxpayers will have to fork over their hard-earned cash to finance these projects. That money is not coming out of thin air. Furthermore, an education model that is sustained by constant taxpayer funds, and not the profit and loss system, is condemned to stagnation due to the lack of consumer input.
Forgiving student debt sounds great on the surface but it has several perverse moral implications. By wiping away this debt, taxpayers are now responsible for individuals who likely take on majors with questionable economic returns and racked up substantial debt in the process. From that point forward, debtors have no real obligation in assuming their debts. This is a slap in the face to those who took out loans and responsibly paid them off.
It would be a surprise for many to find out that college education was not so expensive back in the day. Of course, the government had much less of a presence in the higher education sector. Nevertheless, like pretty much every other sector of the economy, creeping degrees of intervention began in the mid-20th century. First, was the GI Bill signed into law in 1944, which was succeeded by more comprehensive education reforms. In the 1960s and beyond, the nation witnessed the federal government get involved in the student loan industry. With the creation of the Department of Education in 1979, the education sector became overwhelmingly politicized
Since then, student loans have progressively burdened younger generations. We’re not just talking about empty numbers and figures. Lives are being impacted as many millennials put off starting families due to the many financial burdens they face. However, such a socioeconomic calamity is avoidable. It’s a matter of treating education like any good or service, not an abstraction like a “positive right” that must be granted by the state. In other words, a service financed by the taxpayer.
Not only does the government need to get out of the student loan sector, but state-based accreditation barriers that make it harder for new institutions to emerge and provide competition should also be lifted. After all, this is the 21st century and with the internet at our fingertips, there are more educational outlets than ever before that can provide diverse educational services for students of all needs.
It’s good news that politicians recognize that student loans are a problem. Turning to the government – the original culprit behind this mess— does not do us any good, however. This story is rather played out when reflecting on recent American political history. Every time a crisis emerges, the public screams for action and the political class responds with a government “solution”, totally ignoring the root cause of the problem.
Education is practically a sacrament in today’s civic religion, so any kind of attempt to reform it along market lines is tantamount to heresy.