Lady Margaret Thatcher once said that “the problem with socialism is that eventually you run out of other peoples’ money.”
Unfortunately, the U.S. Department of Education ran out of other people’s money about $1.4 trillion dollars ago.
That’s the total outstanding student loan debt held by you, the U.S. taxpayer. If it sounds like a lot, it is. The federal government has pretty much crowded private lenders out of the student loan business. Uncle Sam now controls 90 percent of all student loans in the country.
Federal student loans were never meant to be handouts, but increasingly that’s what they have become. More and more students have piled up massive debt. And Washington politicians, always eager to spend other people’s money, have adopted policies such as loan forgiveness and income-based repayment that allow students to delay payments or have them discharged altogether. When this happens, the federal government keeps lending to students, and taxpayers find themselves stuck with an ever-increasing tab for outstanding student loan debts.
It’s time to break up this government monopoly and let private lenders restore some common sense and discipline to the student loan process. A competitive loan market would put downward pressure on tuition prices, save students from taking on crippling amounts of debt and protect taxpayers from having to assume debts not of their own making.
To make this happen, Congress will need to take three important steps.
First, lawmakers will need to consolidate all current federal student lending programs into one. That single loan option should also have reasonable limits on how much any individual can borrow from the program.
Currently, Washington offers students five different loan options, all issued under different terms and requirements. Students can take out several different types of loans at the same time or sequentially.
This convoluted and generous system enables students to live off student loans for years. It has the unintended consequence of encouraging colleges and universities to raise tuition, housing and other prices, confident that students have virtually unrestricted access to loans that will enable them to cover the bill. This has been a major factor behind the 260 percent increase in tuition between 1980 and 2014.
Consolidating federal loans and placing annual and lifetime caps on lending amounts would create more space for private lenders, hedge against tuition inflation and lessen student-level debt.
Second, policymakers must consider retreating from overly generous loan-forgiveness policies. The Government Accountability Office recently reported that loan-forgiveness programs alone will cost taxpayers $108 billion over the next 10 years.
Absolving students of the need to repay loans hurts the economy and does nothing to keep college costs down. In fact, loan forgiveness only places perverse incentives into the student loan market and encourages more risky borrowing.
Third, Congress should eliminate the costly PLUS loan program. Made available under Title IV of the Higher Education Act of 1965, this program allows parents of undergraduate students and graduate students to borrow up to the full cost of attending college.
PLUS loans are one of the main drivers of tuition inflation. Encouraging families to finance college entirely through federal loans fuels excessive borrowing and exposes taxpayers to massive financial risk.
These three reforms to the federal student loan programs would go a long way toward restoring market discipline — and reasonable pricing — to higher education. As outstanding student loan debt continues to rise, Congress must address the root causes of high college tuition, not kick the can down the road for future generations to pay off.
Federal student lending has dug our country into quite a hole. Let’s stop digging and start looking to the private market for the ladder to upward economic mobility.
• Mary Clare Amselem is a policy analyst in the Institute for Family, Community, and Opportunity at The Heritage Foundation (heritage.org).