Student loan debt creeped up during the Bush presidency — and years before — but the Obama administration has done little to slow the trajectory.
A decade ago, average student loan debt was $18,550; today, it’s $28,950, according to The Federalist.
What has been lacking from discussion about higher education is how, exactly, the $1.2 trillion in student debt will be paid. The federal government recently expanded income-based repayment programs that will forgive the debt, but it doesn’t disappear. The federal government, it seems, will be on the hook for the remainder.
Not all students who graduate carry debt, but almost 70 percent do, a percentage that keeps increasing. The more that the government acts to remedy debt burdens, the worse it becomes. When the government rushes to put out a fire, they keep grabbing the bucket of gasoline to throw when they meant to grab the bucket of water beside it. The Bennett Hypothesis, proposed in 1987 by Reagan’s education secretary William Bennett, states that large amounts of available federal money pushes up tuition.
Essentially, college becomes a seller’s market. Enrollments stay strong because, even with tuition hikes, students have loans available to them to pay it, and they benefit from earning a college degree. Federal loans were meant to help poor students, but in effect, it’s pushed them into debt.
The federal government has taken over the student loan industry — in recent years, 90 percent of new student loans came through federal student aid programs, according to the New York Federal Reserve Bank. The New York Fed also found evidence that supports the Bennett Hypothesis, at least for some students.
The federal government has utterly failed in lowering the costs of higher education. It has been successful in shifting those costs away from students and toward the federal government while making prices higher than they otherwise could be.
Compounding the problem are student loan default rates creeping up to levels not seen since the early 1990s. Given the federal takeover of student loans, those defaults have shifted from a private problem to a public issue.
The college premium still exists. While it’s become less valuable since the recession, college graduates earn more than non-graduates. That economic fact, however, doesn’t sanctify a government policy that increases costs and encourages debt, then takes responsibility for that debt. As Megan McArdle noted, “The federal government now has $1 trillion worth of student loans in its portfolio, a substantial portion of which will be forgiven entirely or in part. But almost no one even dares to ask what we’re getting for all this money.”
The astounding level of student debt won’t continue like an economic law. When the federal government takes on billions in unpaid student debt, however, the economic cost of higher education as a middle-class entitlement will face scrutiny.
