by Richard McCarty
Our educational industrial complex is broken, and swift reform is needed. College costs continue to rise much faster than inflation, and too many students are plowing themselves into debt and wasting years of their lives pursuing pointless degrees. Upon leaving college, these students are often surprised to discover that their degrees have little value. Of course, most colleges are liberal indoctrination centers, where conservative voices are few and often drowned out.
It is time for the federal government – and state and local governments – to stop picking winners and losers. Just as it is unfair for the federal government to recognize the American Bar Association as the sole accreditor of law schools and allow it to erect unnecessary hurdles to keep people from pursuing law degrees; just as it is indefensible for governments to subsidize unreliable solar and wind projects that drive up electricity bills; just as it is illegitimate for state governments to license hair braiders and interior designers to lock competitors out of the field; just as it is improper for the federal government to grant immunity to credit reporting agencies in spite of their negligence and incompetence; just as it is wrong for governments to deny poor people due process and allow predatory towing companies to sell their cars when they cannot afford exorbitant towing fees; and just as it is improper for states to subsidize moviemaking; so it is wrong for the federal government to shovel money to colleges via student loans.
To begin to address these problems, the federal government should do four things: privatize student loans once again, sell off its portfolio of student debt, allow students to discharge college debt in bankruptcy, tie lending rules to the value of a degree and require colleges to repay half of the remaining value of discharged loans.
The first step is the federal government ending its own college loans, but it should also sell off its student loan portfolio, which is nominally worth more than $1.5 trillion. Unfortunately, more than 40 percent of student loans are considered to be “in distress.” Furthermore, according to one estimate, 40 percent of student loan borrowers may be in default in just three short years. If for no other reason, the federal government should sell off its student loan portfolio to stem its losses on these toxic assets.
In addition, Congress should pass legislation to once again allow former students to discharge college debt in bankruptcy if a borrower is unable to find a decent job years after leaving college. In the past, borrowers were allowed to do this, but bankruptcy laws were tightened after lobbying by the banks. One reason that conservatives should support allowing the use of bankruptcy to discharge crushing student debt is to allow more young people to move on with their lives. Conservatives are often dismayed that more young people are not moving out of their parents’ homes, marrying, buying a home, and having children – things which tend to make one more conservative.
One of the reasons for this situation is student debt. Unfortunately, bankruptcy for student debt is seen by some as merely a way of letting borrowers off the hook, but it should really be viewed as a way of holding lenders accountable. For years, government lenders have happily loaned money to unserious students and those who wish to pursue frivolous degrees.
Bankruptcy for student debt, plus privatization, would encourage lenders to be more prudent with their money.
Prudent regulation would tie lending practices to the value of a degree and job prospects in chosen fields. The fewer jobs available in a chose major, the riskier the loan.
Finally, colleges should be required to cover half of the outstanding loan balances when alums discharge debt in bankruptcy, thereby sharing the risk with lenders. Because colleges have been admitting unserious students, coddling and indoctrinating students, offering junk degrees, and cranking out graduates who are unprepared for the real world. Requiring colleges to reimburse banks for a portion of their losses would motivate colleges to stop trying to enroll anyone and everyone with a pulse. It should also lead to colleges cutting costs, eliminating pointless degrees, and focusing less effort on training social justice warriors and more on helping the next generation build the economy.
One way or another, our country needs less college debt, fewer college graduates with worthless degrees, and more trade school graduates, more apprentices, and more entrepreneurs. These straightforward reforms should help advance these goals while making a positive difference for students, parents, and taxpayers.
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Richard McCarty is the Director of Research at Americans for Limited Government Foundation.
