Dealing with student loans one mess at a time hasn’t worked



Americans are beginning to realize that student loans pose a big problem. Total student-loan debt is now well over a trillion dollars (and is predicted to hit two trillion around 2020). About a third of young people who are supposed to be making payments on their loans are delinquent, and there is every reason to suspect that a large chunk of what is owed will not be repaid, with taxpayers picking up the tab. How did we get in this mess?

During the 1950s and 1960s, federal student-loan programs were invented to deal with the wasted-brainpower mess. Americans worried that too many bright young people could not afford a higher education, at a time when the Cold War demanded that we make effective use of our population’s talents. But, by the 1970s, attention had shifted to the deadbeat-student mess amid concerns that too many student borrowers were not repaying their loans and the government needed to devise tougher methods to collect what was owed.

In the 1990s, a new focus emerged—the crushing-debt mess—with stories of students who’d borrowed five and even six figures, and were finding it nearly impossible to repay what they owed and also launch careers, buy homes, and establish families. With the onset of the Great Recession, fears of a for-profit-bubble mess became the centerpiece of student-loan concerns as people came to realize that huge for-profit colleges had student bodies that depended heavily on federal funds and that had low graduation rates and high student-loan-default rates.

Each of those messes was like a magnifying glass that brought a particular aspect of student loans into sharp focus. But, as with a magnifying glass, concentrating on part of the problem made it easy to overlook the rest. And what tended to be ignored were some important trends.

First, the share of young people pursuing higher education has continued to increase. Obviously, this is a good thing, but it also involves increased risks. To the degree that college students have always tended to have better academic credentials and come from more-prosperous families than those who did not pursue a higher education, democratizing access to college has meant that, on average, students’ academic qualifications and financial resources have declined. While many of those nontraditional students will thrive in college, not all do—and those who don’t graduate and land the high-paying jobs reserved for college graduates are much more likely to have difficulty repaying their loans.

Second, the very existence of student loans encourages troubling behavior. Students become less price sensitive; if you already expect to borrow a lot to attend college, why not borrow a bit more? And having students who expect to borrow whatever it will take has encouraged colleges to be less cost sensitive; it makes more sense to offer pricey features that will attract students than to hold down costs.

Similarly, legislators have felt comfortable shifting a larger share of public education costs onto the shoulders of students (who, after all, should have little trouble borrowing the funds they need). The result has been that the increasing cost of attending college has far outstripped income growth and the rising cost of living. This means that students—an increasing number of whom, remember, come from families of modest means—face ever-higher prices, which force a growing share of them to borrow to pay for higher education.

The succession of student-loan messes is characterized by irony: Often what is ignored in one mess becomes the basis for the next one. When policy makers worried about not wasting brainpower, they largely ignored the risk that some borrowers might default. And, even as Congress focused on cracking down on deadbeat students by making it harder and harder to discharge student loans through bankruptcy, lawmakers also steadily raised the limits on the amounts students could borrow, setting the stage for claims about crushing debt.

There is no reason to imagine that we won’t have further student-loan messes; in fact, several are on the horizon.

A growing number of critics are asking whether attending college is worth the cost. While plenty of studies show that those with more education earn higher incomes, it is easy to imagine that, as tuition costs continue to rise, it will become increasingly possible for students who borrow a lot and wind up in careers that pay relatively little to find that attending college has cost them more money than they gained from having a higher education.

Then there are the calls for forgiveness of college debts. Why not declare a jubilee and let the former borrowers use their money to buy houses and otherwise jump-start the economy? There are various proposals to limit the amounts that will have to be repaid, although opponents worry that the proposals will create a moral hazard. If you don’t expect to have to repay more than a portion of your loan, why not borrow even more? Remember, too, that taxpayers will have to pick up whatever sums are forgiven.

And there is the specter of colleges’ being forced to close their doors. Each year brings reports of small private institutions that are unable to attract enough students willing to borrow the amounts they will need to cover their tuition costs. There are lots of such grim possibilities–potential messes that might come to command our attention, even as ever more students take on ever more debt that seems increasingly unlikely to be repaid.

We can continue lurching from one mess to the next until the student-loan system collapses—or not. The alternative is to start dealing with the larger problem of financing higher education. It is all very well to argue that tightfisted legislators or for-profit colleges are what’s wrong, and no doubt they are part of the problem. But so are price-insensitive students and cost-insensitive colleges.

The single most important reason we ought to worry that the student-loan problem will continue to grow is those ever-rising college costs. An obvious place to start is to better control noninstructional costs, but of course all of those costs will have their defenders. To take one obvious example, virtually all college athletic programs lose substantial sums of money, but imagine the howls of protest that any proposal to cut those costs would inspire.

Still, something is going to have to give. In the financial world, people warn that someone is going to have to take a haircut (a loss). It is difficult to see how we can resolve the current student-loan problem without everyone—colleges (both for-profit and nonprofit), students, legislators, taxpayers, etc.—taking a haircut. However, we have a choice: Either we can address the problem of student lending as a whole or we can continue to worry about one mess at a time, until we all find ourselves with really bad haircuts.

Author Bios: Joel Best, a professor of sociology and criminal justice at the University of Delaware, and Eric Best, an assistant professor of emergency management at Jacksonville State University, are the authors of The Student-Loan Mess: How Good Intentions Created a Trillion-Dollar Problem (University of California Press, 2014). Their website is