- The Washington Times - Monday, August 29, 2016

ANALYSIS/OPINION:

At every political event I’ve been to this election cycle — Democrat or Republican, down-ballot or top of the ticket — a millennial always asks the same question to whomever is running.

“What are you going to do to make college more affordable and lower student loans?” they ask sincerely. And there’s no question as to why — average annual tuition at private universities have skyrocketed to $26,740 in the 2014-2015 school year from $9,882 in the early 1980s.

The people-pleasing answer, of course, is to say you’ll make public universities free or forgive their student debt. But, alas, nothing in this world is free, and the result will be growth-crushing taxation to pay for such an effort — on you, your children, your household or business.

What these millennials really need to understand, is that high-college tuition is partially the result of well-intended but ill-conceived liberal policies that were kicked into high gear under President Barack Obama.

For Mr. Obama took the student loan industry public when he passed the Affordable Care Act in 2010, making the Department of Education the originator of about 90 percent of U.S. student loans. Today, student loan financing roughly equals nearly a quarter of the government’s annual federal borrowing.



The president’s goal was to make student loans more accessible and give more kids the opportunity to go to college, and, to those ends, he achieved.

However, there are always pesky unintended consequences.

As more students were able to borrow more money, colleges, in turn, increased their tuition costs, according to an analysis of the Federal Reserve Bank of New York.

Remember the government-induced housing bubble? Same thing. The more loans you can get — regardless of credit qualifications — the higher the prices become. Everyone is happy — until repayment time comes.

The employment market, although better than it was in 2009, is still in recovery and, as millennials will tell you, jobs aren’t plentiful and competition is more intense — they’re now competing against more college-educated youth.

Moreover, not everyone who applied for the loan and was granted it, were college material. Many never made it through their four or six years — dimming their job prospects and government’s investment in them.

More than 40 percent of Americans who borrowed from the government’s main student-loan program aren’t making payments or are behind, according to recent data.

“The federal student-loan program more closely resembles the payday-lending industry than a benevolent source of funds for college,” wrote Daniel Pianko in The Wall Street Journal. “As this newspaper reported in April, ‘43% of the roughly 22 million Americans with federal student loans weren’t making payments as of Jan. 1,’ and a staggering ‘1 in 6 borrowers, or 3.6 million, were in default on $56 billion in student debt.’

“If student debt continues to skyrocket, the federal government may have to deal with as much as a $500 billion write-down when future defaults and loan-forgiveness programs are factored in,” Mr. Pianko wrote.

What’s the answer?

S.P. Kothari, a professor at the MIT Sloan School of Management, had an interesting idea: restructure the Federal Direct Loan Program to base loan amounts on field of study and earning potential.

“When the government is in the business of offering credit, as it is now with student loans, it should think hard about credit risk,” he wrote in The Wall Street Journal with Korok Ray, a professor at the Texas A&M University. “One of the chief lessons of the 2008 financial crisis was that mispricing credit risk can have catastrophic consequences. Yet the government’s Direct Loan Program mostly ignores the credit risk of students, treating them largely as identical in their long-term employment outcomes.

“Just as a mortgage provider now requires higher down payments from risky borrowers with lower FICO scores, federal lenders should tailor the loan amount based on the long-term economic opportunities of the borrower,” he wrote.

I agree. This system may put preference on kids with a mathematics or science education rather than a degree in literary history, but so does the free-market. It may discriminate against those who are riskier four-year bets to finish. Fine. Let them start at a community college and work their way up. Prove you’re up to the task, earn the U.S. taxpayers investment.

A bolder step would be for the federal government to get out of the student loan marketplace — or take its foot off the gas pedal for a bit in offering more and more loans and deferments.

“Despite the goal of being a benevolent monopoly, the government’s intervention into higher education has distorted the market,” Diana Sroka Rickert wrote in the Chicago Tribune. “Higher education should be accessible and affordable. But that won’t happen as long as the government keeps handing out money and trapping people in expensive college loans. The solution is not more government loans, a student debt bailout or swifter loan forgiveness.

“If the housing market crash taught us anything, it’s that all bubbles will burst. It’s time for the government to start backing off,” she wrote.

These may not be the answers millennials may want, but they’re grown up enough to hear them.

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