End All Government-backed Student Loan Programs
During the fourth debate between candidates for the Republican nomination, Florida Gov. Ron DeSantis suggested student loans should be “backed by the universities because they need to have an incentive to produce gainful employment for people.” While DeSantis has a valid point, his solution doesn’t get to the heart of the matter regarding student loans. The government should have nothing to say about student loans. Such loans, like all loans, should only be made by private individuals, businesses, and institutions. We should end all government-backed student loan programs.
DeSantis has repeatedly demonstrated his proclivity to act like a bully and force others to act as he thinks proper. His suggestion regarding student loans implies that he is willing to continue that tactic. Instead of forcing universities to back loans, he should simply end the government’s involvement. If that occurred, the universities could become lenders if they desired.
It is no secret that the value of a college education isn’t what it once was. Many companies, including Google, Bank of America, Apple, Walmart, and IBM, are eliminating a college degree as a requirement for many jobs. The hiring platform ZipRecruitor reports that the share of jobs requiring a degree dropped from 18 percent in 2022 to 14.5 percent in 2023.
The government’s role in backing student loans is a significant cause of the devaluation of a college degree. Government backed loans enable millions to attend college, and thereby increase the number of individuals with degrees. Just as an increase in the money supply decreases the value of each individual dollar, an increase in the number of college graduates decreases the value of each diploma.
Absent the government’s involvement, private lenders would be much more careful when extending student loans. When the government is backing loans, lenders have little incentive to ensure that borrowers can repay the loans. Indeed, this is precisely what caused the financial crisis of 2007-2008.
In the years leading up to the crisis, lenders were forced by the federal government to write mortgages for individuals who were previously unqualified. To do so, lenders had to drop their standards. These were high risk loans, and a high rate of default was easy to predict. But the lenders didn’t care because the government-sponsored enterprises known as Fannie Mae and Freddie Mac were backing the loans.
The solution isn’t loan forgiveness as Joe Biden keeps attempting. Nor is the solution the coercive measures implied by Ron DeSantis. The solution is to end the government’s involvement in every aspect, and that includes putting an end to all government-backed student loans.