The idea of cancelling federally backed college loans may be the most misguided and out-of-touch-idea flying around in Congress. It’s bad economics. It’s immoral. It rewards bad behavior. And, like most out of touch ideas in Congress, it makes the underlying issue—the soaring costs of higher education—far worse.
What cancelling student debt actually means is that the $1.7 trillion owed by student borrowers– 13% of Americans–becomes the debt of every American. We’d all become involuntary co-signers. One begins to think that the #cancelstudentdebt advocates in Congress are like Kramer in Seinfeld—trumpeting that a store could just “write off” its losses, yet finally admitting he didn’t know what a “write off” was.
The debt doesn’t disappear. It’s money loaned by the government or by banks but guaranteed by the government. If the debt is no longer going to be repaid, the government has lost $1.7 trillion dollars. As a result, every American now has a $1.7 trillion hole to fill.
But the federal budget deficit is only the surface problem. Digging that big of a hole in the federal budget will inevitably cause higher taxes and reduce government services for everyone. There will be less room for spending on roads, the military, cyber-security, the environment, and even education.
If the debt is no longer going to be repaid, the government has lost $1.7 trillion dollars. As a result, every American now has a $1.7 trillion hole to fill.
And then there is the fairness issue. Many Americans who attended college worked a job or two to pay for their tuition. They may have even delayed going to college until they had saved enough to pay for it. Why would we make them financially accountable for the debt of others?
Many other college grads had to take out loans, but have already met the challenge of paying them off. They likely sacrificed by delaying moving away from home, buying their first car, or qualifying for their first mortgage.
Some got admitted to schools charging $50,000 to $70,000 per year but, instead, chose a less expensive university or attended community college because it was what they could afford.
And still others were only able to afford college because their parents or grandparents sacrificed for years to be able to help bear the burden. Those with more modest incomes likely avoided family vacations or put off replacing broken appliances. Maybe they bought the kids clothes at Walmart not Gap. Again, why would we saddle any of these people with debts incurred by others?
Finally, let us not forget that many Americans did not go to college. Most of our fellow citizens chose to go to work right after high school, often purposefully avoiding the outsized cost of a four-year degree.
Well, the cancel-student-debt crowd would have every one of these folks co-signers on a loan they never asked for, knew they couldn’t afford, and didn’t want.
Let us also remember what should be obvious. Every single person with a student loan chose the college they attended and chose to take out a loan. Some chose majors, made lifestyle choices, and made spending choices that worsened their debt, making their uncomfortable situations worse. That’s unfortunate, but it’s not their low-income neighbor’s problem to help solve.
Let us also remember what should be obvious. Every single person with a student loan chose the college they attended and chose to take out a loan.
Lastly, most cancel-student-debt activists attempt to use the staggering cost of college to bolster their claims. But this is an unserious argument that, in reality, actually makes the problem worse. Addressing the ever-rising costs for college requires a serious discussion about structural changes in academia, finance and culture. Even a freshman in economics should understand that simply absolving debtors of their loans will not bring down the future cost of college.
In fact, by canceling $1.7 trillion in student debt, many colleges would put-off even addressing rising costs—some would continue to increase tuition rates faster than inflation. What would be their motivation to fix a problem that would appear to no longer exist?
The call to cancel student debt is being put forth by hollow politicians and selfish activists who don’t understand economics and don’t care if it unfairly burdens the rest of us. Maybe we ought to require them to attend business school.
Guy Ciarrocchi is the CEO of Chester County Chamber of Business & Industry. Follow them @ChescoChamber