Roth: Canceling student debt doesn’t fix the problem

The government, particularly at the federal level, has morphed from a protector of individual rights to a bizarre game show. It is consistently giving away cash and prizes to a small group of people at the cost of the unwitting sponsors, the taxpayers. One of those giveaways that has resurfaced is the call to cancel student debt. While the costs of college have become enormous and in many cases exceed the value of what students receive in benefits, canceling debt for some or all graduates does not fix the problem.

The problem, not surprisingly, begins with the government itself. The federal government took over the majority of college lending under President Obama, and it has become the largest predatory lender in the country. It preys on teenagers and saddles them with tens of thousands of dollars in commitments that are not generally dischargeable in bankruptcy court (another government decision) for accreditations that often aren’t able to produce a commensurate return on investment (“ROI”).

This has hurt, not helped, the wealth creation opportunities for many young individuals.

Providing easy and available financing to young people, who have not been taught in our government-run schools how to evaluate ROI, increases the demand for college educations, driving up costs.

Furthermore, there is no underwriting process for student loans. There aren’t more favorable terms for an A student pursuing an engineering degree with strong job prospects vs. a C student pursuing an underwater basket-weaving degree with fewer prospects.

This process of evaluating risk and pricing it appropriately is done for just about every other type of loan that one takes on for a reason. Also, built into every other underwriting process is typically the chance of full or partial default, which creates a mechanism for the allowance of bankruptcy.

The government has completely upended this. Without underwriting and bankruptcy, young people are on the hook, allowing the colleges to continually increase their prices without themselves having any skin in the game or any recourse directed back at them.

This has caused the cost of college to skyrocket, far exceeding inflation or the potential increase in wages students might get for their degrees. One 2021 study showed that the cost of college had exceeded the rate of inflation by almost five times over the last 50 years.

So, how does the government picking some group of people to have their debts “forgiven” solve anything? It would unfairly shift the burden of the costs (via more national debt, inflation, etc.) from the person who took on the obligation and received the benefits from it to all taxpayers. Those who passed up college, went to a cheaper school, made sacrifices to pay down their college debts, or carry other types of debt burdens would be unfairly penalized by the government picking winners and losers.

It would do nothing to help get college costs under control and prevent the same situation from happening in the future. It wouldn’t put any schools on the hook for selling degrees that aren’t worth their costs.

All it does is give the government power to play game show host and ultimately buy more votes.

Moreover, the suggestion by some Democrats that President Biden go around the legislative branch and its powers to forgive debt with a stroke of the pen is once again showing that they have no desire to uphold the Constitution.

Nothing regarding the college cost burden changes until we get the government out of the school lending arena — an arena that it had no business being in to begin with. Debt should be created via a market-based underwriting process, and with that, the ability of individuals to discharge their student loans through bankruptcy courts should be available to all debt holders.

Students who are taking out loans should be shown, at every step of the process, what their expected return on their investment is, based on their major, school, and other factors, and they should be required to sign off on that as part of the process.

Colleges need to either be part of the underwriting process and hold a piece of the loan or be allowed to be sued if graduates aren’t able to use their degrees to better their professional outcomes.

In the meantime, given the cheap debt that has been given to the government and corporations alike for more than a decade, students who do not have the ability today to go through bankruptcy should either be given that option or the rate on their interest paid should be recalculated to an appropriate market rate, and interest paid above that over the past five years should be allowed to be applied to reduce their principal balances.

We need to stop focusing on the symptoms and address major problems. For student loans, as it is for most everything, it starts with getting government out of the way, not with it buying votes.