Instead Of Forgiving Student Loan Debt, What If We Held The Schools Raking In Millions Accountable?

Have a bit of compassion, people will tell you when you make the reasonable statement that student loan forgiveness is not actually a righteous cause nor does it provide any solutions to America’s constantly growing financial woes.

Whatever your beliefs may be about the root of the problem, at some point you really have to wonder why highly profitable universities themselves aren’t the ones bailing out students or relieving them of their financial debt? Well, they’re not offering to in the first place. So instead, debt appears to fall on the taxpayers while universities continue to raise tuition and turn a profit.

Student Loans for All

Let’s look back at Lyndon B. Johnson’s presidency. As we know, he was the arbiter of numerous big-government overreaches. His administration expanded how the federal government financed colleges through the Higher Education Act. Student loans became available to everyone without prerequisites for qualification, which made the student loan an entitlement. 

Fast forward a couple of decades, and you have many generations worth of young adults who were convinced of higher education’s prestige but perhaps didn’t come from the right financial circumstances to be able to afford their education. Nevertheless, many were told by their parents that the only way to be successful was to attend college. In addition to the pressure from their parents and peers, many worthwhile jobs made their application process highly focused on the prerequisite of having a Bachelors, and sometimes even a Masters degree, even for a starting position.

You’d hope that they’re all seeking out college degrees that supposedly boost their lifetime earnings enough to pay back the loans they’re about to take out, but instead many of them are studying humanities or the liberal arts or other non-career-driven degrees that really just funnel them back into working in education.

Through the Higher Education Act, student loans became available to everyone without prerequisites.

At this point, the cost of college continues to increase thanks to the constant cycle of loans being lent out to students who pursue degrees that aren’t career-driven. If you’re taking out loans to pay off a degree that can’t provide you with the income you need to be able to pay those loans back, then you have gotten yourself in a pickle, and let’s be honest, although we can have compassion, it’s still not the American taxpayer’s responsibility to get you out.

Then why are so many people suggesting that this debt should fall on the taxpayers while the universities continue to raise tuition and get rich? Colleges like Harvard have plenty of money to pay back student loans if they wanted to. However, there’s no incentive for schools to lower prices or to take ownership of the debt their students fall into since they can continue to count on government funding to make college “affordable.” If the college that you want to attend knows that you’re going to borrow money from the government to pay for your education, not only will the colleges set the price high to begin with, but they’ll also likely feel encouraged to continue to raise prices. At the same time, amenities and resources on campuses continue to grow to give students the illusion that they’re getting the most bang for their buck. Instead, they’re woefully underprepared for the real world, and the bureaucratic staff, diversity and inclusion officers, and HR department members sit back and enjoy their six-figure salaries.

Colleges Shouldn't Get Off Scot-Free in the Student Loan Debate

Mull this one over for a moment: what if we applied modern student loan logic to other things that people take out loans for?

The federal government sparked a financial crisis in 2008 when Americans who couldn’t afford loans and had no credit history were buying homes and then defaulted on their mortgages.

Forgiving student loan debt is just the federal government acquitting universities of their responsibility. Just like how mortgage lenders made money on loans that could never be repaid, universities help students borrow from the government to fund their tuition. But when students can’t pay those loans back, the schools don’t hemorrhage their income; instead, the responsibility falls on the student’s and the government’s shoulders to lessen their debt.

Almost half of students who borrow money to attend a private, for-profit school default on their loans. Since student loan programs ensure that the colleges are paid per student by the taxpayer, there’s really no financial incentive for colleges and universities to provide the best education and preparation for a student’s career. If they’re going to be paid no matter what, there’s no edge to compete. So many students get cookie-cutter education diluted of any career-focused substance while having the weight of thousands of dollars of loans pushed onto them.

Entire movements are formed to hold Wall Street up to high moral standards, yet colleges and universities are apparently able to evade consequences for the fact that they overcharge, underprovide, and then wipe their hands of responsibility?

Universities escape the consequences for overcharging and then wiping their hands of responsibility.

From what it looks like on the outside, college tuition has risen exponentially while, at the same time, societal pressure to attend college has increased. Revenue for universities comes from tuition. When you consider that, adjusted for inflation, college costs twice as much as it did a half-century ago, it becomes glaringly obvious that costs are just being artificially inflated to make a profit on the students who will keep borrowing. After all, since 2007, student loan debt on average has surpassed 229% owed per holder.

Shawn Fleetwood in The Federalist said it perfectly when he explained that the argument for canceling or forgiving federal student loan debt is actually “that they want to transfer the responsibility of paying back such loans from individuals who chose to attend college to those who didn’t or those who responsibly paid off their own expenses.”

What would forgiving student loan debt do? It wouldn’t incentivize colleges and universities to provide a better education. Just like how raising the minimum wage to address rising rates of inflation is a slippery slope, forgiving this debt doesn’t solve the problem. It just serves as a regressive wealth transfer.

I must add that I’m entirely sympathetic to the fact that college is terribly expensive, but we can’t pretend like it’s impossible to make informed decisions. At the same time though, we also can’t ignore the fact that there are some awful, predatory practices that lenders have been found guilty of.

Predatory Practices

At the beginning of this year, Navient, an offshoot of Sallie Mae’s SLM Corp which was focused on federal and private student loans, was served legal consequences for selling something that was too good to be true. 

Pennsylvania Attorney General Josh Shapiro stated how Navient was putting profits ahead of borrowers and targeting students who probably couldn’t pay back their loans in a repeated and deliberate manner. They pushed “struggling borrowers further into debt by steering them into long-term forbearance programs that actually added more in interest to the overall loan balance,” as well as “lent predatory subprime loans to students attending for-profit and low-graduation-rate colleges where it knew these borrowers could likely not repay the loans.”

This isn’t a new problem. Back in 2014, Parent PLUS, the fastest growing and most profitable student loan program from the federal government of its time, became entangled in scandal since they would offer borrowers as much money as they wanted to attend whichever school they wanted. The debt trap they created was easy to fall into, as some borrowers lamented, “You feel so guilty that you haven’t done enough for your kid, and they make it so easy to get the loans.”

Also in 2014, ITT Educational Services was sued for predatory loan practices. Not only was ITT one of the most expensive for-profit schools a student could attend at the time, but it was also the largest with schools in over 40 states. The suit claimed that “ITT used high-pressure tactics to push many students into high-cost private loans it knew they couldn’t repay.”

They sold students on “temporary credit” which had to be quickly repaid, had exceptionally high interest rates and origination fees, and rushed students through the loan process without providing proper education on what they were getting themselves into. One of the worst parts? ITT knew that 64% of students would default on their loans and have to drop out of college.

ITT knew that 64% of students would default on their loans and have to drop out of college.

In another recent case, Yale, Georgetown, Northwestern, and 13 other major universities here in the states were found to have been working together to “determine financial-aid awards for students” in alleged illegal collusion. 

What if colleges had to compete on their prices instead of colluding and getting away with breaking antitrust laws? Would they then feel incentivized to cut their costs? Or what if colleges didn’t insist on being the arbiters for government-funded financial aid and student loan programs, instead letting students apply for loans through their banks?

By and large, your average student isn’t stuck in a predatory practice. Although they may have the best intentions and feel pressured by society to do so, a student taking out a loan shouldn’t be absolved of responsibility. That doesn’t mean, however, that the lenders and colleges should be able to profit so much from those choices. 

It’s Not Just One Party’s Fault

Yes, students need to know that they will eventually have to pay back their loans and if that’s a mistake then it’s one they’ll have to live with and put in the work and the hours needed to resolve it. That doesn’t absolve higher education of the responsibility of handing out loans as if they’re doling out fun-size candies on Halloween to neighborhood trick-or-treaters.

But colleges, universities, and lenders alike need to be transparent and honest with students and their families about how they can realistically afford tuition and what the high costs are going toward. More parents and students need to be investigating how bureaucratic the school is or things like how many D&I initiatives and officers are there? Does any of that set a student up for success after graduation? Academic institutions should be – and can be – held accountable for providing value if they are to be receiving government funding for tuition. Otherwise, why get the government involved with higher education at all?

Perhaps if educational institutions took the L and assumed more responsibility for the fact that they loaned many thousands of dollars to jobless teens, you might see fewer young adults opting to go to college and bringing more value back to the degree. Production would match demand, employers might not require obnoxiously lengthy requirements nearly impossible to achieve, and tuition would become more affordable.

Closing Thoughts

College is not the only way to succeed. We know this now thanks to countless celebrities and famous entrepreneurs that have been vocal about being college drop-outs or forgoing university all together like Gary V and Mark Cuban. The student debt forgiveness debacle could have been mostly avoided if the high school to college pipeline wasn’t pushed as the best and only option for young adults. From such a young age, America’s youth has been essentially groomed into believing college is prestigious and will pay dividends no matter what.

Thankfully, the pressure from parents, peers, and even companies have lessened when it comes to the importance of a college degree. Many favor real-life experience and a steady job history over a pretty piece of paper these days. Additionally, trade schools, apprenticeships, and community college are all admirable routes for young adults to take which can lead them into a career without locking them into exorbitant debt, fueled by the government and shrugged off by the elites running higher education.

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