Student loan debt shouldn’t mean poverty
Tuesday, August 13th, 2019 @ 11:06AM
My View piece written by Representative Randy Hunt.
Cape Cod Times, August 9, 2019
I’ve heard literally scores of people talking about the student debt crisis, some offering various solutions ranging from straight-out bailout programs to employer-sponsored “cafeteria plans” that contribute to employees’ efforts to reduce their outstanding debt. The problem with these ideas is that they do nothing to stop the creation of even more student debt that will become untenable for many.
Rather than a lengthy discussion about the ugly trappings of student debt, such as how huge it is, the predatory practices of some of the lending institutions, or how it is cramping the ability of young professionals to buy homes and raise families, I want to take a stab at how this problem arose and how we’ve seen it before in a different context. (Hint: It didn’t end well.) Additionally, there is an available alternative in Massachusetts to running up large student loan debts.
The root cause of the student debt crisis is “free money.” Free money, my own term, is too easily accessible with a seemingly endless supply. If you can render your signature, and perhaps that of a parent, the money’s yours and there are no payments due until you finish school (one way or the other). Of course, student loans are not, in the end, free at all. People are strapped with obligations for many years and suffer from an inability to set out on a career with the American dream in sight.
While students are in school, it’s the foggy concept of that faraway day when the piper shows up with his hand out that makes it so easy to keep tapping into more and more free money. The critical question about a student’s ability to eventually repay the loans is not the main focus of these negotiations.
Sound familiar? Roll back to the 2000s before the Great Recession. Free money came in the form of alt-A mortgages, aka signature loans. Generally interest-only loans with looming balloon payments, they carried relatively low interest rates (more than conventional loans but less than credit cards) and could be had with far less documentation than conventional loans.
The amount of cash that poured into the real estate market was extraordinary, creating more purchasers than available properties, which kept prices accelerating with no end in sight. That is, until it did.
Those alt-A loans were consolidated and sold, in some cases reconsolidated and resold, and when the market for this “less-than-prime” and subprime paper collapsed, it nearly dropped our entire financial system. Many changes ensued in the banking and mortgage lending industries with the goal of preventing recurrence of the damage done by free money.
In my opinion, there is no fundamental difference between the current situation with student loan debt and what precipitated the mortgage industry bust. Where free money fueled unwarranted increases in housing prices, it also fuels unwarranted increases in higher education costs. Universities have no reason to conserve or cut back on salaries, infrastructure and amenities, because this unending supply of free money allows for profligate spending to continue unabated.
Higher education institutions don’t need to finance these out-of-control increases; their students do it for them – and they remain on the hook, sometimes for decades, after walking across the stage to receive their diplomas.
Will it crash as the housing industry crashed? It might when people start asking why it costs $12,000 to teach a high school senior and $50,000 to teach a college freshman.
The solution is twofold:
• Student loans should only be made to people who will be able pay them back.
• Affordable four-year degree programs must become a common alternative.
Requiring students to qualify for loans under much stricter criteria is in the federal realm, which leaves little to be done by our state Legislature. But changes in university financing models will not be forced until we do something to cut off virtually unlimited funding coming from student loan debt.
Fortunately, we have an answer for affordable college degrees. A Baker/Polito administration program has been established involving community colleges in partnership with public universities to provide four-year degrees with a cost target of $30,000. We need to make this an alternative for all high school seniors for every discipline. The payback for expanding this program will be enormous for our young people, who will no longer be saddled with financially crippling student loans for the foreseeable future.
To find out more about how this program works, see mass.edu/gohigher/admissions/under30k.asp.