student loans

Should All Student Debt Be Forgiven?

My favorite reform would be making the repayment of all student loans pro­portional to the borrower’s future earnings.

Q. I’m hearing proposals for the forgiveness of all student debt—an estimated $1.5 trillion—to stimulate retail spending, marriage, homeownership and entrepreneurship among the 44 million people (many of them millennials) now burdened with having to make college-loan payments. What do you think of this idea?

A. Not much. There are many things wrong with how we’ve been financing higher education in recent decades—and there are much better ways to do it—but the wholesale transfer of all this debt to the U.S. taxpayer, without regard for a borrower’s ability to repay, would be morally wrong. It would be an affront to the majority of borrowers who either have already paid off their loans or are managing them okay. And it would disproportionately benefit higher-earning borrowers.

Yes, many students over-borrowed to attend more-expensive colleges than they needed to, or to major in fields without good employment prospects—in each case, their own choices. Yes, many colleges took advantage of excessively easy student credit to jack up their tuitions and expand operating budgets.

And, yes, many for-profit colleges (some later closed by regulators) grew fat on government-guaranteed loans they arranged for unqualified applicants who got an inferior education and often didn’t graduate. This last group of borrowers can and should get their debts discharged through the classic borrower defense that they were misled and defrauded by the school.

But canceling all student debt isn’t the answer. My favorite reform would be making the repayment of all student loans pro­portional to the borrower’s future earnings. Monthly loan payments would be capped at, say, 10% of earnings and deducted from one’s paycheck, like income taxes and Social Security. After 25 years, the unpaid balance would be forgiven.

We should also overhaul the many public-service loan-forgiveness programs now in place. These are supposed to allow borrowers who choose certain nonprofit and/or governmental occupations, such as the military, teaching and social work, to discharge their debts, typically after 10 years of timely loan re­payment. But the rules are bizarrely complex and the outcomes often uncertain.

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