Student “Loans”

Eakinomics: Student “Loans” The Biden Administration wiped off the books loans to students of the Corinthian Colleges chain, and continues to tease an executive action to forgive $10,000 or more of student “loans” per borrower. One more time, let’s make the Eakinomics position clear: Student “loan” forgiveness is a solution in search of a problem and absolutely indefensible on the merits. It is not fair. It is manifestly unfair treatment of those who paid their student “loans.” It is manifestly unfair to the taxpayers who will now foot this bill. It is unfair to others who have borrowed from the federal government (e.g., small businesses) and are forced to actually repay. And the bigger the amount of forgiveness, the more unfair it is within the population of borrowers, as the most affluent have the larger student “loan” balances. For an administration that bleeds “equity” concerns, this is a rich moment. It does not help education outcomes. Forgiveness will not send another student to college, change the choice of a major, or improve outcomes in any way. It is a waste of billions of dollars of federal education policy funds that would be better spent on Pell Grants or some other initiative. As a bonus, with a straight face the administration will shortly announce the need for all sorts of new education funding. It makes the student “loan” program worse. Nobody should think these are good “loans.” Since the federal takeover of student “loans” (as a means to finance the passage of Obamacare), student “loans” have been the subprime fiasco of the education sector. The underwriting will not be improved by forgiveness, but the incentive to over-borrow in anticipation of a repeat of forgiveness in the future (so-called “moral hazard”) will make overall performance worse. (This is why “loans” should hereafter always be placed in quotation marks.) As a corollary, it will make college tuition inflation worse because borrowers will be less concerned with the sticker prices. Add it to the administration’s woeful inflation record. It is dreadful leadership. Students voluntarily signed contracts, took and spent the money, and are now being taught the lesson that they need not live up to their obligations. Horrid.