There is now close to $2 trillion and counting in government-backed student loans. In November 2016, the Obama administration announced a $108 billion (with a b) write down, which means those loans are never going to be repaid. $100 billion would have paid for a lot of much-needed infrastructure projects -- and that write-down is only the beginning.
The vast majority of student loans are government-backed. We, the taxpayers, eat the cost of non-paying loans. Today, 40 percent of government-backed student loans are behind on the payments.
Here’s a simple table comparing college costs and first-year salaries across two time periods (estimates include room and board and are for four years at a major public university, such as the University of Georgia or Ohio State University).
That’s a huge reversal. Four years of college used to cost about 60 percent of a graduate’s first-year salary ($12,000/$20,000). Now, school costs roughly 260 percent of their first-year salary ($130,000/$50,000).
You used to be able to work your way through college and/or pay off your loans while you were still young. Not so easy now. The numbers are even uglier for more expensive schools and for degrees with lower-paying job prospects.
What’s going on?
Several factors are driving this increase, including lower education subsidies from states. But the biggest driver is the availability of unlimited student loan money. Students can borrow whatever the schools charge, which means schools have no incentive to control costs. How would you like to run a business where your customers were willing to pay almost any price increase? Sign me up!
We must change the incentive structure of our government-backed student loan program. I propose the following:
Degree-based loan caps: Students may not borrow more than a 150 percent of the average wage for the degree they are majoring in. For instance, if the first-year salaries for your degree is estimated to be $40,000, you cannot get a student loan in the government program for more than $60,000.
This proposal has three main benefits:
Again, this would only apply to government-backed loans; not regular, private loans. Please share this with your friends and family, we must demand your congress person enact a bill that puts controls in place.
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