October 7, 2011

MEGAN MCARDLE: Debt Jubilee? Start With Student Loans.

I am fully aware of what this would mean: government lending costs would go up, the program might well become unaffordable, and if private loans were included (as they should be, at least for new loans), the private loan market might well disappear altogether for all but the most lucrative specialties. The reason that the bankruptcy exception was written in the first place was that the loans used to have an extraordinarily high default rate.

But I’m not sure this would be a bad thing. By allowing students to shift forward the additional income that their degree will earn them, student loans have allowed universities to capture a huge portion of that future income stream–which really hurts those for whom that stream doesn’t materialize. Moreover, it allows students to make the sort of stupid choices that most 19-year-olds will make if they’re allowed. I don’t have a lot of patience for university administrators claiming that they just can’t possibly charge less than $25,000 for 15 hours a week worth of classes, but they do have one point: they build expensive new facilities and load on the services because students demand them, and threaten to go elsewhere if they can’t get them. Colleges look ever-more like four year resorts with a sideline in academic research.

If students actually had to earn the money to pay for that world-class fitness center, the 2,000 different clubs, and the off-campus apartment with the pizza parties, there would be a lot less of those things. And while I like both world class fitness centers, and apartments, they’re not the sort of thing that should be funded with borrowed money. If the degree caused pain now rather than pain later, they might also think harder about whether what they were studying was likely to deliver a solid return on that investment.

If we start forgiving un-repayable student loans, the colleges where they were spent should have to take a hit. Shared sacrifice, and all.

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