Minnesota’s Economic News — W/E 2/3/22
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According to CNBC,
The Department of Education announced Tuesday that it will cancel nearly $4 billion worth of federal student loans for 208,000 borrowers defrauded by a popular for-profit institution.
All remaining students who attended the now-defunct ITT Technical Institute between Jan. 1, 2005, through its closure in September 2016, including those who have not submitted a borrower defense claim, will have 100% of their loans canceled. Borrowers who qualify for the relief will not need to take any additional action to receive the funds.
Regardless of whether students were defrauded or not, this action is quite problematic, for a number of reasons.
For one, the government itself is to blame for this outcome. True, the cost of college has skyrocketed in recent years, but that is due to government action. The expansion of the federal student debt program has enabled colleges to raise tuition — by far more than the rise in the cost of living — because they have federal student debt to cushion the high cost. Student loans are enabling high costs and encouraging people who wouldn’t otherwise go to college to take loans.
Secondly, and more importantly, the decision to cancel these loans will set an even more dangerous precedent. That is, in addition to people going to college because they can access loans, more people who might not otherwise go to college — because they cannot afford it or don’t think it’s worth it — will be encouraged to go to college and take debt on the off chance that their debt will be forgiven.
Choosing to go to college or not, like anything else, has costs as well as benefits. In college, people gain skills that make them marketable in the job world, by raising their human capital. And in return, college attendants must pay for college. The job of the college-seeking person is to decide whether the skills they are paying for will be worth the cost they are incurring — that is all things considered.
It is the responsibility of the college applicant to search for the best school, where they will get the best bang for their buck. It is the job of the applicant to make sure that their money is going someplace they can actually learn valuable skills.
Canceling student debt gets in the way of this personal responsibility. By socializing the cost of going to college, while keeping benefits private, student debt cancellation discourages proper planning and risk assessment, encouraging more people to take loans that otherwise wouldn’t pay off.
Certainly, it’s hard to know every tiny piece of information about one’s school, so sometimes people can indeed be misled. But it is not too far-fetched to speculate that people who might otherwise spend time and resources doing serious research looking for the best college and best program might be discouraged to do so if they are not spending their own money going to that college. Who cares if a college is not accredited if after all taxpayers will end up footing for that bad education?
Certainly, for some high-cost, high-benefit occupations, student debt might be worth incurring. But then again, that does not mean that it’s the job of taxpayers to subsidize individual decisions, especially considering that most student loan borrowers are not necessarily dirt poor.
As research has shown, most college student debt is owned by rich individuals, so college student cancellation is regressive. When the Biden Administration paused, student loan payments, doctors, and lawyers — who are among some of the highest paid occupations — benefited the most because they have higher student debt compared to the average borrower.
With research showing income gaps between non-college-educated and college-educated individuals, it is understandable to see why getting a college degree might seem like a lifeline for some people. Nevertheless, that is not a good justification for subsidizing going to college.
People should only go to college when it’s cost-effective — that is when the benefits do indeed outweigh the costs — and not because they know that taxpayers will foot the bill regardless of whether they learn something skillful or not.
Poor, non-college-educated Americans — some of whom didn’t go to college because they could not afford it — shouldn’t have to subsidize other — likely rich — Americans, who individually decided it was worth getting into debt in order to go to get a college degree.
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