DeVos Takes On the Student Debt Problem

Over 8 million Americans defaulted on their student loans during Obama’s presidency.

Obama responded by issuing a set of memorandums that would force the Federal Student Aid (FSA) office to find more ways to help borrowers handle (in some cases discharge) their debt.

The memos’ objectives were to:

• Simplify the repayment process

• Protect borrowers 

• Facilitate the oversight of servicing contractors

The government currently spends about $800 million each year to collect on roughly $1.1 trillion in student debt, and Obama’s vision would have led to a significant increase in how much loan contractors would be paid to collect monthly student loan payments. 

This Tuesday, Education Sec. Betsy DeVos formally extinguished the memos. Her decision comes a week after one of the student loan industry’s primary lobbies asked Washington for help in managing or altering the Education Department’s loan servicing plans.

“We must create a student loan servicing environment that provides the highest quality customer service and increases accountability and transparency for all borrowers, while also limiting the cost to taxpayers,” said DeVos. 

Obama’s policies were aimed to hold student loan services accountable. Former Education Secretary John King, who was tasked with implanting the changes last summer, criticized loan servicers for “improper or abusive customer service” that reveals a “disregard for student and debtor.” 

The counterargument here is that loan servicers shouldn’t have to babysit their customers, and that borrowers should be responsible for managing their debt. 

All DeVos is doing here is overturning a couple Obama-era policies that she didn’t like (usually a sound strategy), but she is facing harsh criticism from Progressives who think the government should do more to help students pay for college.

Democrats argue that Trump’s Department of Education is abandoning student loan borrowers by placing the welfare of loan contractors above that of student borrowers. David Bergeron of the Clinton-associated think-tank “Center for American Progress” argues that DeVos’s decision “will certainly increase the likelihood of default.” 

The Student Debt Problem 

Tens of millions of Americans struggle with student debt. More and more college graduates are forced to live with their parents simply because they can’t make enough money to pay rent and make monthly student debt payments. Why? Because America’s higher education system is corrupt. 

Over the past 20 years, public college tuition has increased 296%. In 2015, the average annual tuition for in-state students at state colleges was just over $9,000 ($22,900 for out-of-state students). There is no reason why education needs to be this expensive. 

Today’s exorbitant and ever-rising tuition rates remind me of the mortgage crisis – only you can’t foreclose on a degree. As Forbes points out, people and institutions will spend money when money is available. “Easily available credit crates inflation, and tuition is no different.” On top of that, “the easier it is to get the money, the less productive the use of the proceeds.” 

The federal government’s current approach to student loans is driving up the cost of tuition. When colleges know that nearly any student can get a loan, there’s nothing stopping them from increasing tuition – because they know the government will pay for it. Until the government cuts down on student loan access, colleges have no incentive to control or lower prices. 

Another factor in the equation is the misguided sentiment that every student should go to college. 

There are plenty of respectable, moneymaking jobs out there that don’t require a college degree. In fact, I know several people with a High School education or trade school certification who make more money than college grads – and aren’t in debt. 

As Contra Corner’s Jim Quinn points out: “Obama and his minions believe everyone deserves a college degree, even if they aren’t intellectually capable of earning it, because it’s only fair. No teenager left behind, without un-payable debt.” 

Based on SAT scores from 2014, less than 50% of students met the minimum threshold of predicted success in college. Compare this to undergrad enrollment, and US colleges are admitting roughly 4.5 million more students than are actually capable of earning a degree. 

Nearly 50% of today’s college students don’t graduate – which matches up with the SAT predictive results. “The true consequence of providing easy money to people who shouldn’t be in college has been to drive up tuition rates at all colleges and universities,” writes Quinn.

Editor’s note: If this collapses it could cause a recession as bad as the 2008 recession cause by subprime mortgage crash. We do not seem to have learned that lesson yet. I’m not sure yet how to fix this, the tradeoff is massive debt versus preparation for the work force.