Thoughts on Student Loan Cancellation and Incentives
This week Democratic candidates seem to be rallying around the idea that student loans should be canceled. To many "progressives," this idea aligns with their belief of reducing income inequality, creating more opportunities for access to education. While these are certainly valid issues, taking a response as extreme as canceling student debt would be a costly mistake in my opinion. To improve the issue of the cost of education, we need to take a hard look at our system of higher education and the current incentive structure in place.
The idea that politicians have been putting out that if the government was willing to bail out "Wall St." in 2008, they should also be willing to bail out everyday Americans may sound convincing but you are comparing apples to oranges. 2008, was a global meltdown which could have severely impacted the American economy and our status as the world leading economy. It was within the Governments tool chest to do something to stimulate the economy, and while it true that more people should have gone to jail and more executives should have gone bankrupt, the government HAD to do something to prevent a situation similar to 1929. Also, many of those loans were PAID BACK to the government. It is an unfortunate consequence that a lower interest rate environment has ultimately led to greater income inequality, but these occurrences tend to happen in cycles.
The student loan crisis is both a consequence of the government publicizing student loans (meaning the government handles all student loans) and a culture that places a high emphasis on higher education.
Employers and parents generally push students to go to college; however, the actual return of investment (or productivity gains) of going to college is suspect, in my opinion, especially considering the rising costs.
The government, by providing loans to anyone who wants to go to college that you can't default on drastically increased the amount of money flowing to college. To compete for students colleges started offering more services, gyms, and added large administrations. It is no wonder that the cost of education has increased so much considering how much money was being borrowed by students for what society considered a prudent investment, colleges knew that had lines of students waiting to pay them. Colleges are not educating students the best they can for the price; they are educating students the best they can for the highest price possible.
With the supply of people with expensive educations, the prices employers were willing to pay for such employees did not increase proportionally, and thus you find so many people in debt with loans they can't get rid of.
Despite societies insistence on education, I believe there should be some sort of personal accountability for taking on such loans. A common argument against such personal accountability is that just because YOU were fortunate enough to not have loans or have paid your loans off doesn't mean you should be mad that I got my loans paid off. It's you shouldn't be a jealous argument, questioning the other personals morals.
I tweeted earlier that "the biggest issue with politics right now is that people are seemingly justifying everything by claiming a higher sense of morality than the rest of the population." While yes you shouldn't be mad that other people are getting the support they very well may need, forgiving student loans would do nothing to solve the incentive structure of colleges today, and arguably send the cost of education even higher.
We need to take a hard at how was a society evaluate education in a world where technology enables us to bring educational resources to more people at a fraction of the cost. Universities are playing the status game, not the teaching game, and we are paying them more and more to teach less.