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OPINION - Student loans

by Chris Conley

NEWS BLOG (WSAU) Scott Ross is the Executive Director of One Wisconsin Now. They're a Madison-based liberal political-research group. They do a very good job getting their issues and positions into the media. (By the way, I admire them for that even when I disagree with them.) The group has been very active on the issue of student loan debt.

Ross has a personal story on this issue. As a freshman he took out student loans to attend college starting in 1988. It took him 28 years to pay off that debt. And, by all outward appearance, he's had a successful career. Even someone who worked as a congressional staffer and wrote for The New York Times feels the weight of student-debt. Moreso for those with less-promising careers. Ross' group supports President Obama's proposal that would cap monthly student-loan payments at 10% of the borrowers income, and would forgive the unpaid loans after 20 years.

There are some student-loan proposals that I agree with, and some that I don't.

Student-loans should be refinanced, and the federal government should help arrange those deals. If a credit card company sends you an application in the mail that's a better offer than your current card, you're likely to transfer your balance. If you have a mortgage, you're no different than millions of others who've lowered their interest rates from 8% to 4% and are saving money each month. Student loans shouldn't be any different. If market rates go down, who should benefit? The multi-million dollar lenders who have people locked in to above-prime rates? Or the students who are just starting out in life with little-or-no income? There will be a winner and loser in this situation, and I'll side with the students.

But this would help the problem only on the margins. Once you consider creditworthiness as a refinancing criteria (and it should be), only the best and brightest students with the most-valuable degrees and the best job prospects would qualify. The student who took five or six years finding themselves in college and would up with a B.A. in interpretive dance will be the least credit-worthy and will be difficult or impossible to refinance.

That's why there is talk of capping monthly loan payments and debt forgiveness. The student with a useless degree who's working at Starbucks with $40,000 in debt will get only a small benefit from a refi. They'll still be an indentured servant for twenty years, and will still have a loan payment that will eat up 10-cents-on-the-dollar from their low-wage job.

So, should loans be forgiven after 20 years? No . A loan is a contract. There is a covenant for the borrower to replay the lender. Once that no longer exists, an increase in irresponsible borrowing will certainly follow.

Supporters of loan forgiveness say $1.3-trillion is tied up in loans that could be freed up to help grow the economy. The argument can be made for any type of debt. We could just as easily stimulate the economy by forgiving credit cards or car loans. And if we knew that those loans were going to be forgiven, we'd all go on shopping sprees or we'd all be driving Ford Mustangs. That's what's happening with higher education. Some students think those loans won't have to be fully repaid. So they attend overpriced private schools, linger there for more than four years, shrug their shoulders at above-inflation tuition increases, and eventually graduate with dubious degrees. I can think of others who are more deserving of a government handout.

Chris Conley
6.11.14

Image: Scott Ross, Executive Director, One Wisconsin Now from Wisconsin Radio Network.