The Wall Street Journal article entitled "Thousands Apply to U.S. to Forgive Their Student Loans, Saying Schools Defrauded Them" is the proverbial "harbinger of things to come."
Upon reading it, my initial reaction was, "Well, of course, with Democratic candidates for president floating proposals for free college (the avowed socialist, Bernie Sanders) or at least not having to borrow money to attend college (the economically obtuse Hillary Clinton), many currently saddled with college debt will feel emboldened to appeal for debt forgiveness.
How ironic that Democrats, who harp about "fairness," remain silent about how grossly unfair it would be to the millions of Americans who have paid for college and repaid college loans for the government to institute free college education or start forgiving billions of dollars of college debts.
As is often the case, however, the situation is more nuanced and complex than a simple, "Don't forgive student loans." There are four issues here:
1) Are students actually being defrauded in a strict legal sense, or are they simply unwise consumers who should pay the price for their own costly decisions?
2) Should anyone be eligible to have student loans canceled?
3) Should an innocent third party -- the U.S. taxpayer -- have to bear the cost?
4) What is the federal governments proper role in higher education?
The students in the WSJ article were not traditional college students. They attended post-secondary schools of a decidedly vocational bent. They were promised up-to-date technical training and the assurance of being placed in a job using those skills -- promises that turned out to be false.
Having once, as a young man, spent a week learning how to peddle such vocational training to unsuspecting high school graduates, I am convinced that some of those schools cross the line (at least some of the time, if not chronically) into fraudulence. I am not a lawyer and don't know all the facts of these cases, but it is quite possible that those students were defrauded, and so should be entitled to relief or compensation.
But what about students who earn a bachelor's degree at a liberal arts college and then find that they can't get a job that uses that degree -- have they been defrauded? As long as their colleges haven't promised that they would find a job in their chosen field, there is no fraud, but that doesn't mean that nothing smells funny.
Many of these students have been beguiled by a myth that colleges, high school guidance counselors, and even politicians propound: The notion that if you go to school and work hard for four years, you will be rewarded with a job in your chosen field. (If you want to read some more myths about college, see my "Mythbusting 101" articles.)
According to the U.S. Bureau of Labor Statistics, 34 percent of jobs require some post-secondary education; only 23 percent require a bachelors or more; yet 68.4 percent of 2014 high school graduates enrolled in college. Some of those will drop out before graduating, but it is clear that many people who earn college degrees will be crowded out of their chosen fields.
Graduates of the University of Alabama's class of 2011. The economic downturn has hit recent college grads hard. New data show only half of those who graduated from 2006 to 2011 are working full time.
Labor economist Richard Vedder has cited BLS statistics that painfully illustrate this overinvestment in higher education: "Over 317,000 waiters and waitresses have college degrees (over 8,000 of them have doctoral or professional degrees), along with over 80,000 bartenders, and over 18,000 parking lot attendants."
The fact is that colleges know they are cranking out far more graduates than the job market can absorb. They are in the business of filling their slots, leaving it to consumers (students) to recognize that they are taking an expensive risk when they go into debt to finance college.
Other than clear-cut, provable instances of fraud, should any student loans be pardoned?
Actually, I am conflicted about this issue. On the one hand, of course debts should be repaid, for both moral and economic reasons. On the other hand, I do have some sympathy for young people whose life prospects are being crushed by a heavy burden of debt that they were saddled with by adults engaging in professional malpractice.
I refer here to college officials, who have a conflict of interest and too often fail to warn students that $100,000 of debt for a bachelor's degree in theater is a dangerous, high-risk investment, and to loan officers at lending companies who don't bother doing due diligence about how much debt students can afford to take on, because the bankruptcy laws that protect mature businessmen don't offer a similar option for college debt.
Do we really want to condemn people to pay a decades-long penalty for misjudgment made when they were young and naive?
The problem has an additional dimension due to the federal government having taken over so much of the student loan business.
Government bureaucrats don't care if students don't repay loans -- it's not their money that is lost. It's the taxpayers who ultimately bear the costs when students default on a government loan.
Why should taxpayers have to bear the cost, even in cases of outright fraud? Throughout our history, courts order restitution for various torts and offenses, but if the guilty party doesn't have the wherewithal to repay, nobody expects the taxpayer to cough up the desired funds. Why should it be any different for college students.
The solution to these vexatious problems is for the government to get out of the business of financing college educations entirely (with a possible exception for those who have served in the armed forces). President Barack Obama has more or less nationalized the college loan business. Expanding that to the point where Sanders wants to take it -- the federal government funding all college education -- is a major step toward the nationalization of college education itself.
If the federal government withdraws taxpayer dollars from higher education, fewer people will attend. That horrifies the left, but if we already have large unemployable gluts in many fields, then subsidizing college educations for anyone who wants one will only exacerbate the gluts while further diluting academic standards that already have declined noticeably.
By privatizing the college loan market and amending bankruptcy laws to make college students eligible under certain conditions, fewer unwise loans will be made and fewer people will end up paying big bucks for an economically useless degree. Free competitive markets give us better cars, cell phones, computers, etc., and a college market free from wasteful government subsidies will improve higher education and result in more productive use of our country's wealth.
Mark Hendrickson is Fellow for Economic and Social Policy with the Center for Vision & Values at Grove City College.
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