Opinion: Why student loan forgiveness is only a temporary solution to this crippling debt crisis


Headlines calling for the elimination of student debt have recently gained attention as U.S. policymakers seek solutions to a failing higher education funding system and ways to help overburdened students.

While some form of relief may make sense in this time of economic uncertainty, these one-off proposals fail to address the root of the current crisis and may cause new problems, including problems with the economy. fairness, efficiency and moral hazard, if larger systemic problems are not resolved in tandem with forgiveness.

A more responsive and holistic approach would focus on improving systemic transparency around education outcomes, costs, and opportunities, as well as improving lender underwriting practices for student borrowers. Results should be presented in clear and standardized formats, and public and private lenders should consider expected future income before offering a student various levels of debt.

Indeed, the central structural problem is that the federal government writes blank checks for study programs, regardless of whether the field of study is in demand or will bring in future income capable of enabling the student to repay his debt. . Indeed, the government does not conduct a “repayment capacity” test. Even without further debt relief efforts, a recent study determined that, under current policy, the U.S. government (and therefore the U.S. taxpayer) should already expect to lose over $ 400 billion in existing student loans that have not been repaid.

A former treasury official in the Obama administration noted that “there is no market discipline here. . . In 2007-2008, we saw many lenders making risky bets going bankrupt. There isn’t such a force in the student loan market.

Ignoring real-world data and results regarding higher education funding is doing a huge disservice to students and the U.S. economy. Students, especially when pursuing graduate programs, can go into debt without receiving the information they need to make informed decisions. Neither the student nor the government lender assesses the borrower’s true repayment capacity.

For example, the average amount of student debt incurred by law graduates in 2019 The Golden Gate University that had borrowed was $ 142,667, yet only 22% of graduates in the class of 2016 held full-time, long-term jobs where passage to the bar is required. 40% of this promotion is unemployed.

Additionally, by failing to anchor higher education and funding decisions to outcomes and labor market data, current structures further exacerbate the skills gap that plagues the US economy. Specifically, labor shortages have become a chronic problem in key economic sectors, including transport, skilled trades, cybersecurity / IT, education, and health care.

The solution to poor student and labor market outcomes is simple: ensure transparency about the expected outcomes of higher education. Especially in the context of vocational and skills-based programs, what can be expected in terms of increased future earnings? What percentage of graduates find employment? What skills are needed for both today’s economy and the economy of tomorrow?

For their part, policymakers should facilitate the compilation and publication of such data through dedicated research efforts. By working with private sector stakeholders, including schools and lenders, state and federal governments can support the dissemination of information for better decision making and better allocation of resources.

Schools need to be responsible and honest in the way they share information with prospective students. One approach would be to provide a disclosure form similar to a consumer loan disclosure.

Lenders should also be responsible for granting credit, including considering a borrower’s ability to repay a loan through an analysis of the expected future debt-to-income ratio. For graduate and professional studies, this repayment capacity requirement should guide both private lenders and the federal government.

The country is at a critical juncture in higher education policy and funding. One-off solutions like loan cancellation, while well-intentioned and desperately needed by many, do not by themselves solve the underlying problems. We need to be honest and transparent with students, educators and employers so that everyone can make informed decisions.

Angela Ceresnie is CEO of Ascension credit, a student loan and payment platform

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