Why I won’t be signing the “forgive college debt” petition (sorry!)

When I was in college (the first time), there was a creek–okay, a drainage ditch–that persons sufficiently stricken by boredom could trace for a surprising distance across campus.  I don’t know if the creek/ditch had a name.  In retrospect, it could have been named Morton’s Fork, after the pre-eminent fundraiser of the fifteenth century.

It seemed like the school was always in fundraising mode.  If enrollment was down, funds were urgently required to make up the shortfall and avoid program cutbacks.  If enrollment was up, funds were urgently needed to build facilities and provide scholarships for these droves of new students.  There didn’t seem to be a happy medium.  Nor was it possible (apparently) to cover the expenses by raising tuition…which they did, again and again.  (Somewhere I have a copy of a college catalog from the late 80s which I occasionally dig out and show modern college students when I want to see jaws drop.)

I say this not to lambast my alma mater.  I don’t pretend to understand university finances; plus, I expect most other colleges are in a similar fix…whatever that fix happens to be, exactly.  The point is, college is expensive, and is becoming moreso as time goes by.  And yet, if people are going to continue to go to college, the fact remains that somebody has to pay for it.

This, of course, brings us to the question of student debt, a financing method popular with students (at least during the initial stages) as well as colleges (who as long as the money is flowing freely can raise tuition ad infinitum without seriously impacting demand).  Indeed,  it’s a plan that for many seems almost inevitable in the face of costs that rise at many times the rate of inflation.

And yet, like all debt, it’s using someone else’s money, and that money has to be paid off with interest.  Normally, that’s not a terrible problem, providing you can get a well-paying job on the strength of your degree.  It may be burdensome, but in the long run, it’s generally worth it.  Where it becomes a problem is the situation in which one can’t get a well-paying job afterwards:  either because of an economic downturn, a glut of people in a field with limited openings (think humanities), or a very low median salary for people with that particular major (think education).

As the recession drags on, I keep seeing references to an online petition calling for the cancellation of all student debt.  A great idea, the petition says.  A way to increase spending and stimulate the economy, since suddenly people will be free of this crushing debt.  And a way to strike back at those greedy banks.  Who would be so cruel and heartless as to say no to a great idea like this?

Well…put me down, for one.  On the “opposition” side, I mean.  And here’s why.

For a start, any such proposal would end with the taxpayers taking yet another hit.  Many of those loans are federally guaranteed, which means if the student can’t pay, the feds step in.  Whether such a federal guarantee would extend to loans cancelled in this sort of move would depend on the legislation–but even if the legislation also cancelled the federal guarantee, I expect taxpayers would be on the hook for a great deal of litigation on the subject.

Second, it would create even more problems in the financial world–which would probably mean another bailout, for which the taxpayer would once again be on the hook.  Banks have to maintain a certain balance between their assets and liabilities, and if all their student loan holdings (assets) were suddenly zeroed out, yet another panic could ensue.  The Great Credit Crunch of 2008-9 could get an encore, as banks suddenly have less cash to loan out, even to students.  Particularly and especially to students, all things considered.

In some circumstances, it might not be completely wrong for banks to “take a haircut” to some extent.  I’m not sufficiently familiar with what goes on a student loan application to know how much due diligence is actually done these days.  Does the lending institution ever ask what the student is majoring in, or how they expect to pay off a $60,000 loan with a degree in badminton?  Do they keep up with students’ grades to verify that they aren’t pouring good money after bad?  (Must foundering students, like Greece, demonstrate some level of austerity before the next tranche of aid arrives?)  If the institution isn’t showing some level of attention to the credit-worthiness of its loan recipients, it had better be prepared for a certain number of write-offs anyway.

And, of course, if banks were unable and/or unwilling to continue writing student loans, college enrollment would drop precipitiously, assuming that tuition costs didn’t show a proportionate deflation.  The kind of havoc that would wreak in the collegiate world I leave to your imagination.

Finally, there’s the major insult to all those who have worked made the sacrifice to pay their debts off in full.

So on the whole I think I won’t sign onto this idea, which on the face of it seems like such an easy way out but would likely turn out to be more trouble than it’s worth.  Granted, it’s one solution to the escalating problem of college debt, but I think I’d rather wait for a different one:  possibly one that starts with the twin realizations that a) maybe not everyone needs to go to college and b) maybe it does matter what you major in.

In a way it’s rather surprising that so many college grads–presumably most of the signatories of this petition would be college grads, since we’re talking about student debt, after all–don’t seem to be thinking this all the way through.  After all, that’s what college is for, isn’t it:  to teach you how to think?

To quote C. S. Lewis:  What do they teach them at these schools…?

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