What seems to bother Jason Delisle about the explosion in educational debt is the possibility that borrowers might defer repaying their debts or default on them entirely:
It is time to re-evaluate how we measure the performance of student-loan programs—particularly whether borrowers are or are not meeting their obligations. The traditional measures of nonrepayment—delinquencies and defaults—might be fine for most types of loans, but not for outstanding student loans, nearly all of which are held or backed by the federal government. Lawmakers have provided students with options that let them punt on repayment without triggering delinquency or default. Lately, students have been availing themselves of those options at rising levels.
The forbearance benefit, for example, lets borrowers postpone payments for up to three years. By law, loan-servicing companies have a lot of discretion to grant forbearances, and getting one usually takes only a phone call on the part of the borrower. Some borrowers might have to complete a simple form and meet a payment-to-income test. But overall it is the easiest and fastest way for a borrower to suspend student-loan payments.
rather than that it is “crippling students, parents, and the economy”:
It’s a negative sum game for both student-borrowers and the economy. According to the Consumer Financial Protection Bureau, student loan debt has reached a new milestone, crossing the $1.2 trillion mark — $1 trillion of that in federal student loan debt.
This pushes student loan debts to dizzying new heights, as they now account for the second highest form of consumer debt behind mortgages. With the federal debt at $16.7 trillion, student loan debts measure at 6% of the overall national debt. This is no small figure, and national debt carries many consequences including slowing economic growth (translating into fewer jobs being created) and rising interest rates. Capital will not be as easy to access.
My own view is that student debt is a colossal waste of resources, predicated on an error that has been made by three consecutive presidential administrations—that college degrees will result in better jobs. It’s cargo cult thinking: because people with college degrees have jobs that pay more you’ll get paid more if you have a college degree. It’s not the college degree. It’s the jobs. If burger flippers at McDonalds all have college degrees, they’ll still be paid minimum wage. They’ll just have debts they will never be able to pay off which means they’ll consume less and there will be less economic activity than there otherwise might be which will make us all poorer.
However, let’s play along. Imagine that we really do want, say, 60% of Americans to have college degrees. Leave alone that a supermajority of kids who enter college aren’t ready to do college level work (many never will be). We’ll just assume it away.
From a societal standpoint what’s the most efficient way to pay for it? I think it’s obvious that what’s needed is a very much less expensive college degree, presumably by putting some or all of the process online.
And even if you insist on continuing the absurd method we have of financing college educations, more of a persistent subsidy to colleges than a practical way of financing an education, how can financing art history or communications majors be considered anything but an unacceptable risk? When you apply for a business loan or a home loan what you’re financing has at least some bearing on whether you get it. That future creditworthiness has no apparent bearing on whether a loan is issued is a clear sign that the scam is on. Is Mr. Delisle upset that the scam is being detected?