Here’s an economics lesson that belongs in the textbooks.
Student loan debt soared to more than $1.5 trillion during the Biden presidency, and the response by Washington was to “forgive” hundreds of billions of these unpaid loans by deadbeat borrowers and let the taxpayers pick up the tab. It was never clear why the universities that charge exorbitant tuitions that have reached more than $75,000 a year at many elite schools shouldn’t bear the cost of the program – but that’s another story.
Those of us who watched these events unfold predicted that one result of this policy would be that many college graduates would stop paying back their loans. And guess what?
Just like clockwork, this headline from Bloomberg recently told the whole story: “Student Loans Drive US delinquency Rate to Highest Since 2020.”
Gee, who – except a bunch of head-in-the-sand politicians in Washington – would have ever thought that forgiving as many people from paying their student loans as possible would increase future nonpayment?
Well, the Biden administration, for one. Now that the Department of Education is honestly reporting the data, we find that serious delinquency rates are over 10 times what the Biden Department of Education said they were.
There is an old saying in physics and economics: Every action in the universe has a reaction. How many students in the future will pay back unpaid student loans when the next forgiveness program is right around the corner? So people who did the right thing and paid back their debts now have to pay more for the people who refused to pay back the money they owed.
In Washington, we love to reward vice and punish virtue.
As we said many times last year: Expect student loan defaults to remain sky-high for many years as deadbeat borrowers wait for the next student loan amnesty program.
Fortunately, in the House of Representatives’ “big, beautiful” tax bill, there are new caps of $50,000 on student loans for undergraduate students and $100,000 for grad students. This cap should help slow the stampede of higher tuition prices, which have grown two to three times the rate of overall inflation over the last 30 years. The availability of cheap student loans only fueled this stampede of tuition prices. The Wall Street Journal calls this move “The End of the College Free Lunch.”
The bad news is that we should anticipate bigger stashes of student loans to pile up at taxpayers’ doors in the years to come. The good news is that this scam has reminded us that in life, incentives matter. This episode brought to light the financial foolishness of debt forgiveness programs, and so hopefully we will never do this again.
Except that politicians have very short memories.
Stephen Moore is a cofounder of Unleash Prosperity and a former senior economic adviser to Donald Trump. His new book, coauthored with Arthur Laffer, is “The Trump Economic Miracle.”
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COLLEGES SHOULD BE HELD ACCOUNTABLE FOR HALF OF THE DEBT THEY ARE THE ONES RIPPING OFF THE STUDENTS AND TAX PAYERS
There should never be a question as to whether your loan will be “forgiven.” No, you take out a loan, you repay it with terms established at time of loans inception. Simple.
Can I get my mortgage forgiven? No. Serving in the military IS a good way to pay for college. Military schools are worth college credit, tuition assistance, PACE, GI Bill, etc. Lot’s of opportunity to complete a degree debt free.
Let’s not forget we need more Skilled Trades also. Meaning Trade Schools, paid apprenticeships and Journeymen Tradesmen. Pay in the Skilled Trades is just as good if not better than a newly graduated under-grad looking for a job.
Believe a lot of these students can help avoid large student loans by joining the military. Once served get a job. Go to night school and use both employer sponsored tuition repayment and the GI program. That’s what I did. May take longer to get your degree but better served to be debt free from student loans.
Student loans have little or no scrutiny when it comes to buying a less than useful education. In short, a waste of money with no return that must be paid back. If these people cannot be trusted to honor an almost subprime contract, then everything from this point forward says they are extremely poor credit risks with a bleak financial future.
biden was stupid
Wasn’t the student loan program originally under banks/financial institutions? That is where student loans should be again. I doubt banks would approve a loan for a major that has little chance of producing enough income to repay what it costs to go to college/universities today. Banks want their money back. I think putting the student loan program back under banks’ responsibility would essentially dry up the useless degree market very quickly.
And the cost today to go to a college/university–that’s another discussion in itself.
Return student loans to the private sector.
I took out a student loan to attend college in 1965 and repaid every penny of the loan. I’m wondering if I will be reimbursed, with interest. If we can forgive today’s loans, why not reimburse previous loans? If we had not wasted billions of $$ in Ukraine, we could enrich the lives of many Americans!
Let me say I was never in favor of Biden’s student debt forgiveness plan. If you take out a loan, pay it back. That said, the the article is misleading. Student loan forbearance started in March 2020 under the Trump administration due to the pandemic. The spike in the default rate was expected. In fact, on May 13, the New York Federal Reserve said “After a five-year hiatus, student loan delinquency has returned to the pre-pandemic ‘normal’ with more than [10%] of balances and roughly six million borrowers either past due or in default.”
Crooked politicians do illegal things in the guise of charity or forgiveness, knowing that it will boomerang, but that’s after they have gotten the votes of the innocents.
My husband went to college full time on the GI bill and also worked full time. It was hard for him, but he got his degree. It can be done.
Biden wasn’t doing anything to help America, only put us deeper in debt!
Bad thing about student loans is the ridiculous amount of interest they charge. They shouldn’t be allowed to charge that much and maybe people would be able to pay off what they borrow.
Seems like this people failed in economics.
but they excelled in political science.
Maybe they could go to a loan shark, to help them pay for Their debt!?
See how he deals with forgiveness of a loan!
“So people who did the right thing and paid back their debts now have to pay more for the people who refused to pay back the money they owed.”
I’m sorry, but this is absolute BS! Anyone who “refuses” to pay back their student loans should have liens put on their property and have their wages garnished. They borrowed the money, they should pay it back. I am so sick and tired of these entitled a-holes. If the demoncraps want to forgive loans, let THEM pay for it. Send a bill to the biden, harris, the awful obtuse cretin (aoc), sanders, and the rest of the vile ilk who thought this was the right thing to do. Show them the error of their ways. Those who were against this garbage shouldn’t have to pay for it. I, like many others here, paid in full what we borrowed.
And are mostly stupid about money.
My mortgage has been sold several times. Why can’t we sell these student loans to banks and financial institutions? Why would they buy them? Well, we would get our money back and they would deduct the losses from their taxes that they don’t pay anyway. It would be a win/win for everyone. Of course, it would terminate any future student loan programs – another win. Yal, I know – too simple.
The whole thing was simply a scam to buy votes.