The Student Debt Trap: Why Government Subsidies Destroyed College Affordability

The time is near to confront the issue of student loans and how the bureaucrats in D.C. keep failing to fix the problem of skyrocketing loan payments as mass defaults loom. The crisis, and it is a crisis, has proved that massive federal subsidies, not free markets, destroyed college affordability.

Nearly 9 million Americans are already in default on their student loans, roughly 1 in 5. This is especially relevant this week as millions of student loan borrowers are facing severe payment shocks as older income-driven repayment options get phased out. The result is monthly student loan payments that are quadrupling. Not a good situation for the borrowers or our economy, which will be affected. 67% of surveyed borrowers state that they are no longer able to afford these new monthly payment obligations, which will put them in default.

Meanwhile, many of our elected officials in Washington insist on taxpayers bailing out these students’ loan debt, on top of the existing programs already in place. Conservatives and liberals are ignoring the fundamental economic reality that the student loan crisis is due to the government getting more involved in higher education. Yet, both camps still feel the need for the federal government to continue meddling in the education market.

We can simply look at a historical timeline to see how this student debt bubble was created by yet another “unintended government involvement consequence.” When the federal government began guaranteeing and directly issuing student loans to teenagers with zero credit history or underwriting, it detached higher education from normal market forces.

In turn, universities saw that since students had access to a seemingly unlimited tap of federal credit subsidies, the universities had little to no incentive to keep their costs in line with normal market forces since the federal government money tap was wide open. So universities raised tuition at more than twice the rate of inflation while dramatically expanding administration and campus amenities.

And here we are again, talking about more bailouts for student loan debt when prior programs failed to solve the core problem, putting American taxpayers on the hook for trillions of dollars of avoidable risk. When will we learn that government is horrible at solving problems that it, in fact, created?

Perhaps a better idea is to go back to the way things were by getting the government out of the education lending business so the private markets can assess risk via creditworthiness and the real earning potential for those seeking varying degrees. We must remove government intervention from higher education.

An additional idea to improve the situation would be to require colleges and universities to co-sign or hold a direct financial stake in student debt. If graduates cannot secure employment to repay their education, the university should absorb part of the loss; this would give universities a vested interest in seeing their students become productive and responsible members of society.

Lastly, I think we should abolish the federal higher-education accreditation cartels and open the door for private trade schools, apprenticeships, micro-credentials, and self-paced digital education to compete freely with legacy universities.