The end of student loans

When it comes to student loans, President Biden is acting like Lucy removing the football just as naïve Charlie Brown is persuaded to kick it. Every time the president sets a new date to resume student payments, he takes it away. Student borrowers wonder when payments will start again and if they do, where they will find the money they long since spent.

Delaying payments is not a policy; it is the absence of a policy. But it does make almost certain that student loans will go unpaid. A loan without discipline, without enforced rules, is just silly. The student loan program always was. It was lending to 17-year-old kids without any credit checks based on a hope and a prayer that the kids would find a way to repay it in the future without having any idea what principal and interest, tenors and defaults really mean.

Now, the administration needs to salvage what it can. Just like it had to retreat to the airport in Kabul, it has to accept loan forgiveness. Let’s not forget, he campaigned on forgiving “a minimum of $10,000/person of federal student loans.”

If the administration doesn’t accept this reality, it may suffer widespread defaults on the new repayment date on May 1. Of course, it could ramp up enforcement by its debt collectors. But where will it put all the cars they seize from the delinquent student borrowers? 

Meanwhile, Vice President Harris is calling for new ideas around student loans, for thinking out of the box. When she was running for president, Harris suggested loan forgiveness for those borrowers who started businesses in disadvantaged areas. Its emphasis on entrepreneurship was commendable but it was hardly a comprehensive solution. It had some similarities to the program of public service forgiveness where people choose careers not on their desire or ability but as a means to avoid debt. These prescriptions try to ease students out of a problem they never should have had in the first place and place them in another if they don’t like being a teacher or government lawyer.

But the vice president is right about thinking out of the box. The good news is that it is possible to remove the burden on students and save the higher-education system. For instance, how about no longer charging students interest but instead investing their principal payments to earn the return. Or why not have employers match the student debt payments of their workers like they do for social security payroll deductions. After all, they directly benefit from what the students learn in college. And let’s have the government start treating families like adults by sending them the money their children borrow rather than skipping over them to send it to the colleges like they do now. If the students and families are mature enough to repay the debt, aren’t they mature enough to receive the money in the first place? If the government put the money into tax-advantaged 529 accounts, it might also encourage people to save. With a portion of this money families could even hire counsel to negotiate tuition with colleges. Just as unions fight for increased wages, families could fight to decrease college costs.

Today, all of these commonsensical ideas lie scattered outside the box. But none of them are new. Like Lego pieces, they could become building blocks to make a shiny new way to finance college.

Robert Hildreth is a former International Monetary Fund economist whose professional work involved restructuring South American debt and marketing sovereign debt loans. He founded the Hildreth Institute dedicated to restoring the promise of higher education.