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For $1.8 Trillion In Student Loans, It’s Payback Time
Student loans are in the news and I feel like I should say something about them, even though every t
One alternative is to write down part of the principal extend the term and greatly reduce rates for those who resume payments and stay current. Like a 1/3 discount at the end of the term, 25 years to pay and 2% rate. That’s realistic and fair. And in the future the federal government should make matching grants paired with state grants. No loans
Cost is another issue. When I went to college–admittedly some time ago–my tuition and fees were about $750 a quarter at a good state university. At the start, I had financial-aid that included a grant and a loan, so I was only paying about 1/3rd of that out of pocket. By my junior year I had a good part-time job and no longer qualified for the financial-aid, but I was still able to cover the costs of attending part-time. Yes, it took me longer to finish school that way, but I actually managed to pay back my student loans before I graduated. (I did not live on campus by the way.)
School choice is another consideration. Current tuition at “my old school” (to quote Steely Dan) is about $8,000 a year. That is a far cry from the $35,000 a semester that seems to be ubiquitous now at “more prestigious” universities. If you envision it takes about five-years to graduate–or four-years plus some summer school–that is $40,000 vs. $350,000 in tuition from start-to-finish.
Very few students/parents pay the published tuition rate these days. Most international students do and those families who make $500K plus and have assets do. The average family is getting significant financial aid grants at high-tuition private schools. So your 350K to 40K comparison isn’t really apples to apples. If you’re paying full-freight, you and your family can afford it.
There is no good answer to the student-loan issue. I’m a fan of just forgiving it (at least at the undergraduate level), but it doesn’t solve the problem as mentioned in the article. And the biggest issue is that we’re asking a 17 / 18 year old kid to make a huge financial decision that they can’t possibly be equipped to make at that age. Solid parental advice, etc., might mitigate awful decisions, but at the end of the day there’s no real solution to that hurdle.
Perhaps I have given a poor example. My point was really more that not every university is worth the price of the student loans people are taking out in order to attend them. When prestigious schools raise their tuition, other (often “for-profit”) schools raise their tuition as well. Higher costs = bigger loans.
I’m sympathetic to your arguments. But I’m stuck on how we’d solve the (awful) political optics of endorsing a one time, 1.8T wealth transfer from all taxpayers exclusively to those who’ve attended college. That’s a big ask. Even with the “AI is eating all the white collar jobs that you went to college for” narrative, you’d have to pair this with a (deserved) boost to the social safety net (at far greater cost).
Principal only loans.
Doge apparently laid off many of the workers that are needed to help people start a payment plan that want to. Evidently nobody can get in touch with anybody to find out what their payment plan is.
This is the correct answer. Make student loans interest free. One time adjustment to current outstanding loans to correct for the interest already paid and all future payments go directly to principal. Newly issues loans accrue no interest. We can even go back and say all interest paid on closed loans originated after dd/mm/yyyy (or some phasing in) will be reimbursed via tax credits. This is absolutely doable and solves most of the identified problems without taxpayers footing the entire bill.
I, and many others of my generation, are willing and able to repay the loans we accepted for higher education. That said I know a disturbing amount of people who are stuck in negatively amortizing loans. I have a friend who has made payments totaling ~25% of the original principal of his loan, but his current balance is ~20% HIGHER than the original amount. Negatively amortizing loans are illegal in many places, but the federal gov’t doesn’t seem to think it’s a problem.
One other point to head the boomers off at the pass: Do a quick google search for “tuition growth vs. wage growth” or something similar and you’ll see why the narrative of “I worked to put myself through college” simply doesn’t apply anymore. The math has changed.
I don’t feel the least bit sorry for those students that piled on student debt in order to attend expensive private institutions. I pounded it into my kids that state universities offer good educations and charge a fraction of what private institutions charge. They both followed my advice and obtained STEM degrees from NCSU. They have both paid off their student loans and are diligently working to become debt free with their cars paid off and making major reductions in their mortgages. They never would have made that type of progress if they’d gone to MIT, Yale, or Harvard.
+1.
Germany considers education a human right, we should all consider that while we’re attacking people who seek to make a better life for themselves and their families. It’s farcical to sit here and say “we” can’t afford for people to be able to go to college for free while Germany has solved that problem and is the economic powerhouse in the EU. Oh, and they also have figured out how to give people healthcare too, gosh I guess we’re just too damn rich to solve these problems.
My first priority would be to ensure affordable college options for current and future students. Not that the Ivy League needs to be affordable – there will always be a range of pricing – but via smaller and public institutions.
My second priority would be to ensure more technical and trade education options.
My third priority would be to provide some relief – not necessarily complete loan forgiveness – for existing loan holders, starting with the more recently graduated.
As often happens I just got a crazy idea. What if instead of playing the part of an angry jerk, Trump and his henchman would create a program designed to get colleges to set aside part of their excess endowment cash to temporarily fund their current government grants? The grant allocations could then be shifted to pay off student loans. So in essence, the grant money is still around and the loans would slip away. Finally, add in a partnership program creating tax advantages for large donors to education to help their recipient colleges make up some or all of the lost funds. Win, win, Trump would even look generous (something he tries to avoid) the schools would get a nick, but the ones he’s targeting can afford it. Also this would placate who wish to raise taxes to the rich. Force them to participate by giving to education, give them delayed tax credits for doing so and unwind the problem. Lots of political capital could be created for both sides of the aisle, companies could get a ton of goodwill. Bessent could spend the rest of the first term working this out. Just thinking out loud.
I was curious as to why University Education costs have risen so much over the past 40 years. From ChatGPT – here’s a simplified list of the main reasons university costs have increased, each with a short explanation: the % at the end is the number Chat attributed to each category (recognizing it would be different for every University).
Reduced Government Funding – Public universities get less money per student from the state, so they charge more tuition, approx. 25% less adjusted for inflation. 25-30%
Administrative Bloat – The number of non-teaching staff has grown significantly, increasing payroll costs.15-20%
Luxury Amenities – Schools compete with upscale dorms, gyms, and dining, which are expensive to build and maintain. 10-15%
Faculty Costs – Some professors earn high salaries, though most teaching is now done by lower-paid staff, 5-10%
Regulatory Compliance – Legal requirements mean schools spend more on lawyers, safety, and reporting systems. 5-8%
Expanded Student Services – Mental health, tutoring, and career support services add to operating costs. 5-10%
Technology Investments – Universities spend heavily on digital infrastructure and IT support. 5-8%
Less Efficient Instruction – Smaller classes and niche programs are more expensive to run. 3-5%
Higher Demand and Degree Inflation – More students see college as essential, pushing demand and prices up. 3-5%
Easy Access to Student Loans – Generous loan availability enables schools to raise tuition without losing enrollment. 10-15%
Focus on Research and Prestige – Elite schools spend more on research and branding than on teaching. 2-5%
Great post and great comments. I’ll state at the outset I don’t have any answers on par with the actual solutions offered here. But it’s disheartening at this particular moment to be adding another log to our already-blazing fire of unsustainability (immigration, tariffs, budget deficits (in mind if not reality), housing, climate change, oil and gas drilling/transport, transgender high school sports).
In an increasingly partisan government driven by an increasingly minority party, however, it’s not really that surprising that we’re devolving to government by crisis, the delightful conjuncture where we have to do something meets with we could try anything. Trump has obviously recognized that by hysterically deeming everything an emergency to grease further one-sided power grabs. I just hope Treasury Secretary Quint
knows how to drive a bigger ambulance. So far, the jury is out.
And so crisis it shall be with this latest self-own on student loans. As I said, I have no answers and can only underscore that notions of forgiveness or free future education are running headlong into a greedy and dogmatic effort to “fix” education by making it as private, for-profit, and fundamentalist Christian as possible. Betsy DeVos, I’m looking at you.
While I don’t have any meaningful solutions, everyone likes an -ism these days, so can I recognize a gift jingoism in the mouth by counter-offering yet another MAGA alternative? (h/t to H): Make America Determined Not to be Obtuse. Not sure it’s doable, but it certainly seems more realistic than MAGA at this point, and it would make me a lot happier than getting Greenland.