What has led to the student-debt crisis?
Bankrate senior economic analyst Mark Hamrick argues increased financial education of college-bound students could help to aid the fight against student debt.
Everyone and (especially) their mother has an opinion on millennials. We’re either the generation that destroyed chain restaurants and going to the cinema, or we’re helpless victims of the vast student-loan complex.
For older conservatives, young millennials are just a few free lunches away from declaring worldwide socialism. And they’re not wrong: polling from the Victims of Communism reveals 70 percent of millennials would vote for a socialist candidate. Yikes.
But despite the damning polls, millennials haven’t damaged the free market. After all, we are the generation that pioneered the $5 cappuccino with every flavor imaginable, popularized Uber and Lyft, and figured out ways to make money by “gigging” our cameras, our spare bedrooms, and even our electrical outlets.
HOW MUCH CAN YOU BORROW FOR A STUDENT LOAN?
Millennials aren’t all socialists; it’s just that the socialist voices are the loudest. And when it comes to the student debt crisis, which cuts deeply into our rent payments, simplistic solutions like “soak the rich!” get more airtime.
The socialist solution for "Big Student Debt" is clear: empower government to solve the problem by magically eliminating debt or by loosening bankruptcy restrictions. To those struggling under the weight of student loan payments, these solutions are better than simple “blame and shame.”
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After all, many of these loans were taken out during millennials’ formative years. We were asked to make crucial decisions that would have a ripple effect throughout our lives, and many of us didn’t have any guidance about costs and benefits.
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How much is a college degree worth? Until the facts are clear to those considering college, this crisis will continue.
Statistically speaking, a college degree is the best way to increase earning potential. This is especially true for millennials. For the generation before baby boomers, the earning gap between a high school diploma and a college degree was roughly $7,500. For millennials, this gap is $17,500. It’s the difference between middle-class earnings and poverty.
Pew Research found in 2014 that 22 percent of millennials with only a high school degree were in poverty. Compare this with boomers in 1979, when this number was only 7 percent. It’s no wonder millennials are more likely to have completed a bachelor’s degree than any other generation.
But nobody thinks an entire generation swimming in $500 billion of debt is an optimal outcome. And the reason some millennials took out massive loans that weren’t worth the costs is simply, “because they could.” The money was available from Uncle Sam with few strings attached — except, of course, when the bill comes due.
The U.S. Department of Education spends roughly $150 billion each year to support education in the form of grants, work-study funds, and loans. Unlike private loans, which are based on credit, these funds are awarded based on students’ financial need.
These loans have been linked to the higher cost of tuition for good reason. They’ve created a cycle of rising college tuition costs, exacerbating the need for financial aid. Millennials are trapped in this self-perpetuating cycle, and the only solution being discussed is expensive and unjust debt forgiveness.
It’s time we heard some free-market solutions to the student debt crisis. Government can help, but only if it’s willing to step back.
Turning off the tap of unlimited access to federal dollars would push students to be more cautious about the types of programs and institutions they select and the types of loans they sign. Competition of this sort would incentivize students to evaluate the value of mortgaging the future for a medical degree versus a gender studies degree.
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Prices communicate information. But that information is only accurate under a free-market system. When government crowded out the loan market and distorted the market, the real price of education was hidden. Millennials were operating on bad intel, and that led them to make poor investment decisions.
There are real solutions to the student loan crisis in America that don’t rely on billion-dollar “free” schooling from cradle to grave or massive government bailouts. To promote competitive solutions, older conservatives must understand that millennials are victims of government intervention. We have the tools to fix that — and it shouldn’t mean bigger government.
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