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Reviews | To tackle student debt, fix inefficient colleges

“The debt crisis is a very recent phenomenon,” he told me. “There was a previous crisis in the 1980s. The default rate was then three times higher than it was during the Great Recession. The cause was terrible schools that enrolled unsuspecting students and burdened them with unaffordable loans. Congress has therefore enacted very strict rules. If your default rate was too high, your institution was kicked out of the lending program. Or if students depended too much on federal aid. Or you used aggressive recruiting techniques. Or you taught everyone remotely. Thousands of schools have been evicted and the delinquency rate has plummeted.

Looney continued, “Then in the late 90s or early 2000s we eliminated the distance learning rule. There was no quality control. We gutted the rules on default rates and the fraction of funding that could come from federal sources. We have eliminated loan limits for graduate students. All of this has allowed the proliferation of poor quality schools.

In 2018, then-Education Secretary Betsy DeVos scrapped a regulation that would have required for-profit colleges to prove that the students they enroll are able to get well-paying jobs. A 2018 New York Times article called the move “the most drastic in a series of policy changes that will free the scandal-scarred for-profit sector from the safeguards put in place during the Obama era.”

The federal government could reinstate guarantees imposed under Obama and previous presidents, but congressional Democrats are currently focused on debt relief. President Biden has repeatedly extended a pandemic moratorium on student debt repayment. The current moratorium is due to expire on August 31, so he will have to decide soon whether to extend it again or opt for permanent relief. Whether he himself can cancel his debt by executive order, or whether he must ask Congress to do so, is unclear.

Some progressives, including Sen. Elizabeth Warren, Democrat of Massachusetts, are pushing for widespread debt forgiveness, saying it would primarily benefit the poor and lower middle class, especially black borrowers, who are at greater risk of default. of payment.

In fact, widespread forgiveness would help the rich much more than the poor, according to Looney. The debate on this issue is mind-numbing, but I am persuaded by two points raised by Looney. First, some of the borrowers who appear poor at first glance—such as recent medical school graduates—are wealthy when considering their lifetime earning potential, which they have built up throughout their studies. Canceling the debt of these nominally “poor” people would not exactly strike a blow at the proletariat. Second, many low-income people already receive limited debt relief. Complete debt forgiveness is less of a benefit to a low-income person who was unlikely to pay in full anyway, whereas it is a valuable benefit to a high-income person who would have paid in full.

Looney is all for selective debt forgiveness. “Just about everyone agrees that people who experience low income for a period of time and cannot repay their loans in whole or in part should see the majority of their loans forgiven. (Indeed, it is the law now, albeit poorly enforced.),” he wrote in an email. “So the contested ground (and the progressive position) is to argue for forgiveness for people whose income is enough to pay.”