THE TRUTH ABOUT FEDERAL STUDENT LOANS

Why the Program Should Die

Like so many feel-good programs, the federal student loan program, created in 1965, had a positive goal in mind—to make college accessible for those who couldn’t pay tuition as it came due. The idea was that the only way to middle class success was through a college degree. It’s also part of the problem we have with not enough people in the trades, even as most of those who choose this option do quite well, focusing on electrical, plumbing, car repair, etc. The push for college has made too many consider themselves “above the trades,” which is sad. So many would be happier and more successful there. And we need them.

Colleges saw a great opportunity here. When the loans were easy to come by, just like credit, many people didn’t consider the downstream cost to them, so colleges greatly raised tuition and started spending. But worse, they created many low-value majors to encourage more people to go to their school and lowered grading standards, making their students feel more accomplished than they were. Finally, many kids, able to keep drawing money, stayed in school for much longer than the usual three to four years, avoiding the work world. The result was drowned so many people in student loan debt, because their education hasn’t led to a well-paying job. If you major in a science field or IT, you’re almost certainly guaranteed a job. But if you major in transgender ethnic studies as a 40-something woman claimed sitting in her Occupy Wall Street regalia, you will find, as she did, that no one needs your services.

And colleges have greatly increased their administrative staff, which does little to enhance education or outcomes. They can do this because they bring in so much money. Tuition would go down to lower levels if the government weren’t backstopping even the schools with huge endowments.

Sadly, too many people are unprepared for college and drop out, while the loans stay with them. They have all the downside of the federal loan program with no upside. Or, they finish, but have a degree that does nothing for them, dumbed down to ensure they finish. This problem is exacerbated by the large number graduating high school with limited literacy and math skills. When they go to college, they are at an extreme disadvantage. This leads to a negative return on investment; you never make enough to justify going to college.

The taxpayers take a big hit here because when people don’t pay off their loans, more tax money has to go into the program to provide more loans. It’s a Ponzi scheme. And many graduates stop paying. If you try this with a bank, there is no forgiveness, so you figure out ways to pay.

Better Solutions

Without the government intervening, private financial groups will once again offer loans; it’s good business. But most likely, only to those who have a good chance of succeeding.

Companies seeking well-trained people, especially in IT, are offering to subsidize students in those tracks by paying their tuition but requiring them to “pay it back” by working for them upon graduation. In short, it is a great way to get educated and get a good job immediately. Obviously, if you leave the company short of your obligation, you owe them some or all of your tuition back, but this is a fair trade many are willing to make.

In fact, the government has been running programs like this for years, seeking people in the right industries in return for an obligation to serve. I applied for the Naval Medical Officers program where they would have paid for me to go to med school and then, I would work for them for the same number of years I spent in school. Sadly, I didn’t get into medical school (came very close), but I was happy to take the deal. Many are. This is the private solution, almost always better than a poorly conceived government one. (Yes, that’s the libertarian coming out in me).

Does every important job require a college degree? I say no. If you are 16, have created a money-making app with your programming skills, you’re ready to go to work when you want to. College can provide broadening, but with the online universities and other educational platforms, anyone can pick up knowledge, explore interests and become a better-rounded person, simply by checking out classes that are either free or at a much lower cost than college.

End the federal student loan program now. And if the government wants to have any say in education, have them increase focus on the vast numbers of important jobs that don’t require a college degree. Finally, employers are beginning to see that not all degrees are created equal, opening up career paths for those who have no college or just a few classes. This is an important move. Some professions do require college, but not as many as people think. In some states, you can read law (not go to law school). Let’s rethink this whole thing to create better job and life prospects for our kids.