A Legislative Agenda to Fix The Student Loan System | Opinion

The Biden administration was eager to roll out its student loan forgiveness plan in hopes of keeping at least one campaign promise. But just days after the 2022 midterm elections, a Texas federal judge ruled that the loan forgiveness was unlawful. And last Monday, the Eighth Circuit Court of Appeals in St. Louis barred debt cancellation nationwide. The government has stopped accepting loan relief applications, leaving borrowers in limbo.

President Joe Biden's loan forgiveness plan was set to cancel up to $20,000 in student loans for Pell Grant recipients and $10,000 for non-Pell borrowers. The administration bypassed Congress and relied on the "national emergency" of the coronavirus pandemic to justify the jubilee (even though Biden himself admitted the pandemic was over after announcing his loan forgiveness plan). Since then, several lawsuits have been filed to stop loan forgiveness.

The whole situation has borrowers understandably upset. But really, no one should be surprised by this roadblock. The legal grounds for loan forgiveness were shaky from the start. The Biden administration could still resume loan forgiveness if their legal appeals are successful. But what would that solve? Outstanding student debt will simply return to current levels by 2028. The recent decisions in Texas and the Eighth Circuit demonstrate that fixing the debt problem through executive action is not a viable option. Instead of band-aid solutions like partial debt forgiveness, we need fundamental legislative change from Congress to prevent students from engaging in the excessive borrowing which is driving the crisis.

Current discussions surrounding loan forgiveness frustrate all sides. The government provides false hope to borrowers by dangling the carrot of loan forgiveness; meanwhile, many Americans do not want to be on the hook for other people's debts. While this back and forth is ideal for statesmen looking to score political points, it does nothing to address why students struggle to repay loans.

The most obvious reason for the student debt crisis is the high cost of college—attendance costs have nearly tripled since 1980. Many have noted this fact, but there is little agreement as to the cause. The higher education establishment blames decreases in state funds. Others claim that college prices have increased due to rising professor salaries. And still others claim that a college degree is more expensive because it is that much more valuable—a claim which is debatable at best. But none of these theories answer the fundamental question of how college students and their families manage to "afford" the skyrocketing prices: easy availability of federal student loans. It is the federal student aid system itself, an effective subsidy to the higher education industry, which has led to the rise in prices.

Universities, in addition, use deceptive marketing to portray their graduation rates as higher than they actually are. Four-year universities often tout their six-year graduation rates. But students who apply to these universities likely expect to finish in four years. And that rate is just around 45 percent. Some students drop out, and do not receive the financial benefits of a college degree. Others switch academic programs, and may incur more educational costs than originally expected because they remain in school longer or switch into majors with a lower return on investment. Students can end up further in debt due to the unexpected additional schooling. And those who go to work in fields with a lower return on investment are less likely to recoup the debt.

Student debt signs
WASHINGTON, DC - AUGUST 25: Student loan borrowers stage a rally in front of The White House to celebrate President Biden cancelling student debt and to begin the fight to cancel any remaining debt on August 25, 2022 in Washington, DC. Paul Morigi/Getty Images

Over the years, the government has eased lending requirements to increase student accessibility to loans. But access to something without sufficient merit is a disaster.

Current popular policy suggestions to fix the student loan crisis include imposing price caps on universities and canceling student loan interest. Both of these prescriptions sidestep the issue. Seventeen states have already employed university price caps on public institutions in the past. Sticker prices at these institutions did decrease as a result. But colleges have many levers they can adjust in response to policy restrictions. In general, they ended up reducing institutional aid for needy students to compensate for tuition revenue losses. Even private universities in these states, which had no tuition caps, reduced their institutional aid.

Eliminating student loan interest would be extremely costly, as we have already seen. It cost Americans $155 billion to stop collecting interest during the pandemic payment pause—and that was supposed to be a temporary measure. A permanent 0 percent interest rate would not only cost us money for existing borrowers, but would also encourage more students to borrow. In addition, it would give borrowers an incentive to delay repayments and let inflation eat away at their loan balance.

Lawmakers should instead place stricter standards on federal student loans. These loans should be conditioned upon a degree's economic returns and each borrower's academic merit. Public funds should come with public accountability. Conditioning loans on a student's future earning potential would serve as one indicator that taxpayer funds are being used wisely. Under such a system, computer science majors would receive a higher borrowing limit than, say, art history majors. We want to encourage students to enter fields that are in demand and profitable, and discourage them from spending excessively on education in a field that is unlikely to allow them to recoup those costs.

Considering a student's academic record prior to college entrance is also vital to prevent college drop-out due to poor academic preparation. A student could intend to enter a highly profitable field, but poor academic qualifications signal a high probability they will drop out or switch to an easier major.

These reforms would prevent future student debt crises. Borrowers who still want their loans forgiven should hold higher education institutions, rather than taxpayers, accountable. After all, the debt crisis would not exist without the university's decision to admit the student. And it is the university's choice to charge the tuition prices it does.

Neetu Arnold is a senior research associate at the National Association of Scholars and a Young Voices contributor. Follow her on Twitter @neetu_arnold.

The views expressed in this article are the writer's own.