However, data from a Civic Science student loan study revealed that more than one-third of Americans are saying they don’t plan on making any repayments — a number that increases to 50% for lower-income respondents who are making less than $25,000 annually.
The study also highlighted that, since the repayments resumed last October, only 33% of Americans have actually resumed regular payments of their student loans.
President Joe Biden is continuing his illegal and obvious effort to buy votes by “forgiving” student loans. It is a healthy reminder that government involvement makes everything worse. Let us remind ourselves of how we got here.
The cost of college has been increasing for decades far in excess of almost any other major expense. Throughout this period, our culture shifted and parents and K-12 educators pushed more and more kids to college by portraying college as a requirement for future financial stability and personal fulfillment. This characterization is not wrong, but it is also not universal. There are many paths to financial stability and personal fulfillment.
As demand for college continued to swell, the prices continued to rise (basic demand curve consequences), and students took on more and more debt to pay for their sheepskin Golden Ticket to the Middle Class. According to The Education Data Initiative, the cost of college has risen by 747.8% since 1963 after adjusting for inflation.
Prior to 2010, college students primarily had to get student loans from private financial institutions. In this construct, the private financial institutions were taking a risk loaning tens of thousands of dollars to 18year-olds with no credit history and no current means of paying the loan back. Those institutions generally required a co-signer from a responsible adult before issuing the loan. Private institutions were taking a risk on the future earning potential of college aspirants. The risk and apposite interest rates served as market pressures to limit the amount that students could borrow.
In 1965, President Lyndon Johnson pushed for and signed the Higher Education Act. Part of that law was the Guaranteed Student Loan Program or Federal Family Education Loan Program. In this scheme, the federal government became the co-signing guarantor for student borrowers based on a few qualifications. With the federal government guaranteeing the loans, the private financial institutions providing the loans relaxed their requirements and were much more willing to provide more money to students.
Demand was rising and the supply of money to meet that demand became easier to get. America’s colleges rose to the challenge by continuing to increase prices to accept the available money supply.
Over the decades, the qualifications for the loans guaranteed by the federal government were gradually loosened to allow more students to borrow more money. Between 1965 and 1992, all federally guaranteed loans were subsidized with the taxpayers paying the loan interest while students were still in school. In 1992, the federal government began guaranteeing unsubsidized loans where the student loans would continue to accrue interest for the student to pay back after graduation.
In 2005, President George W. Bush signed a law that had the federal government allow higher interest PLUS student loans for graduate students that would also allow them to borrow up to the total cost of attendance.
2010 was a pivot point. President Barack Obama signed the Health Care and Education Reconciliation Act. This law eliminated the Federal Family Education Loan Program by requiring all federal student loans to be Direct Loans. Effectively, it was a government takeover of student loans as it was no longer economically viable for private financial institutions to compete with the federal government for high-risk borrowers.
With the federal government now in charge of student loans, any remaining market pressures to regulate the issuance of debt were eliminated. With an unlimited supply of money, the decision to issue a loan to a student became perfunctory. The people issuing the loans did not care about the risk because it was not their money. The students taking the loans were willing to take as much money as possible. The politicians overseeing the programs were, and are, motivated by political considerations and not economic considerations.
We have created a third-party payer system in higher education where the people paying for the service (taxpayers) are paying for an unrelated person (students) to receive a service from provider (colleges). By trifurcating the financial transaction, market forces that might otherwise provide downward pressure on prices or demand are obscured.
The result was inevitable. With students able to borrow as much as they want from an unlimited vat of cash, colleges raised prices to capture as much money as possible. According to the Education Data Initiative, College tuition inflation averaged 12% annually from 2010 to 2022. That is twice as fast as tuition was increasing in the previous decade and well above the rate of currency inflation.
With the federal government now fully in charge of student loans, political motivations trump economic realities, fairness, and common sense. In a tough election year on the tail end of a disastrous presidency, Biden is willing to violate the law to force the taxpayers to eat the debt of borrowers in order to buy their votes. In doing so, Biden will further exacerbate the problem of rising college costs and debts for short-term political gain.
LBJ created the problem by having the federal government guarantee student loans. Obama accelerated the problem by having the federal government take over student loans. Biden is inflaming the problem by effectively having the federal government eliminate loans and just pay for college through debt “forgiveness.”
Government intrusion always makes things worse. President Reagan was right. “The nine most terrifying words in the English language are ‘I’m from the government and I’m here to help.’”
WashingtonCNN — Although the Supreme Court struck down President Joe Biden’s signature student loan forgiveness program in late June, his administration has found ways to cancel more than $48 billion in debt since then.
The cancellations have come through existing federal student loan forgiveness programs, which are limited to specific categories of borrowers, such as public-sector workers, people defrauded by for-profit colleges, and borrowers who have paid for at least 20 years.
These programs are separate from the rejected forgiveness plan, which would have canceled about $430 billion of the $1.6 trillion of outstanding federal student loan debt all at one time.
Here is my full column that ran in the Washington County Daily News last week:
With October upon us, the well-meaning, morally repugnant, and oft-extended moratorium on student loan repayments has finally come to an end. It is not a crisis. It is a return to normalcy.
According to Forbes, borrowers owe $1.75 trillion in student debt, including federal and private loans, or about $28,950 per student. Interestingly, the average debt for just federal loans is $35,210 per borrower, indicating that federal loans are granted much more liberally than private loans. In Wisconsin, the average borrower owes $30,778 in federal student loans.
That is a lot of money by any measurement. The problem is exacerbated by the fact that many of the people who owe tens of thousands of dollars for their education are not earning enough money to comfortably pay it back. It is difficult for a person earning $36,754 per year (the average per-capita income in Wisconsin in 2021 according to the U.S. Census Bureau) to fit student loan payments into their monthly budget — especially in Biden’s inflationary economy.
Student loans have been around for generations, but the issue has become acute in recent decades because of two aggravating factors. First, the cost of a college education has skyrocketed. Between 1992 and 2022, the inflation-adjusted average cost of college at a four-year public university increased by 26.7% according to College Board. A $50,000 education in 1992 now costs $129,000. Over the same period, inflation-adjusted median household income rose by only 17.6%. The price of higher education has been increasing much faster than students’ ability to pay.
The reasons for those increases are myriad. The federalization of student loans made for easy money for universities to tap. They took advantage of students flush with borrowed cash to bloat up their administrations and go on a building binge.
Meanwhile, the second aggravating factor is that demand has risen as high schools across America portray a college education as the only viable path to stave off poverty. Instead of portraying the military, the trades, entrepreneurship, or other career paths as equally viable, too many high school teachers and counselors — all college graduates themselves — have culturalized kids to think that anyone without a college degree is lesser.
Compounding the misleading culturalization, the abysmally wretched financial education provided in those high schools leave prospective students ill-equipped to evaluate the risk/reward of financing a college degree with debt. Ignorant of the power of compounding interest, too many kids are borrowing tens of thousands of dollars to get a degree with little market value. The result is that they are unable to get jobs after graduation that pay enough to easily pay off the debt.
It is true that some people are not getting the value out of their degrees that they had hoped for or were promised. It is true that college costs more than it should. It is true that student loan payments make it more difficult to afford other things and that everything is more expensive than it used to be. It is true that lenders were all too eager to dole out money without any consideration of the degree being pursued or potential future earnings of the graduate.
All of these things are true, but it does not absolve the borrowers from the obligation to pay off their own debt. It is not a financial question. It is a moral one. If you borrowed the money, then you must pay it back. To fail to do so makes you a shameful deadbeat and a drain on your family and community. Having a college degree does not make you any less of a loser if you renege on your obligations.
Furthermore, nobody wants to hear you whine about your student loans. In 2022, less than 38% of adults 25 and older had at least a bachelor’s degree. Three in five adults in the United States do not have a college degree and did not sign up to pay off the debt of people who have one. Most adults who do have a college degree have either paid off their student loans, are paying off their own student loans, or never took out a loan in the first place. They did not sign up to subsidize deadbeats who do not want to pay off their student loans.
The college and student loan system is terribly broken and has led far too many people into borrowing more money than they can easily afford to buy degrees of marginal value. Honor, respect, and dignity demand that the borrowers pay it back as promised.
Meanwhile, the second aggravating factor is that demand has risen as high schools across America portray a college education as the only viable path to stave off poverty. Instead of portraying the military, the trades, entrepreneurship, or other career paths as equally viable, too many high school teachers and counselors — all college graduates themselves — have culturalized kids to think that anyone without a college degree is lesser.
Compounding the misleading culturalization, the abysmally wretched financial education provided in those high schools leave prospective students ill-equipped to evaluate the risk/reward of financing a college degree with debt. Ignorant of the power of compounding interest, too many kids are borrowing tens of thousands of dollars to get a degree with little market value. The result is that they are unable to get jobs after graduation that pay enough to easily pay off the debt.
It is true that some people are not getting the value out of their degrees that they had hoped for or were promised. It is true that college costs more than it should. It is true that student loan payments make it more difficult to afford other things and that everything is more expensive than it used to be. It is true that lenders were all too eager to dole out money without any consideration of the degree being pursued or potential future earnings of the graduate.
All of these things are true, but it does not absolve the borrowers from the obligation to pay off their own debt. It is not a financial question. It is a moral one. If you borrowed the money, then you must pay it back. To fail to do so makes you a shameful deadbeat and a drain on your family and community. Having a college degree does not make you any less of a loser if you renege on your obligations.
Furthermore, nobody wants to hear you whine about your student loans. In 2022, less than 38% of adults 25 and older had at least a bachelor’s degree. Three in five adults in the United States do not have a college degree and did not sign up to pay off the debt of people who have one. Most adults who do have a college degree have either paid off their student loans, are paying off their own student loans, or never took out a loan in the first place. They did not sign up to subsidize deadbeats who do not want to pay off their student loans.
The college and student loan system is terribly broken and has led far too many people into borrowing more money than they can easily afford to buy degrees of marginal value. Honor, respect, and dignity demand that the borrowers pay it back as promised.
by Owen | 0835, 18 Feb 1919 | Economy | 20 Comments
I blame the students who took on odious amounts of debt for degrees that offer little opportunity to repay the debt and the adults who enabled the kids to take on the debt.
Student-loan delinquencies surged last year, hitting consecutive records of $166.3 billion in the third quarter and $166.4 billion in the fourth.
Bloomberg calculated the dollar amounts from the Federal Reserve Bank of New York’s quarterly household-debt report, which includes only the total owed and the percentage delinquent at least 90 days or in default.
That percentage has remained around 11 percent since mid-2012, but the total increased to a record $1.46 trillion by December 2018, and unpaid student debt also rose to the highest ever.
