Editorial: How to fix the student debt fiasco (Hint: Not with a $50,000 bailout per student)

The U.S. Senate parliamentarian opened the door last month for Democrats to push through at least one more major bill this year without facing a filibuster. That’s made it possible — not likely, but possible — for Democrats to deliver on one of their progressive wing’s top priorities: forgiving student loan debt of up to $50,000 per person.

But lawmakers should think far more strategically about student debt, rather than simply showering everyone with tax-free loan forgiveness in such high amounts. After all, forgiving up to $50,000 per borrower would cost the Treasury an estimated $1 trillion. There are ways to target the money better, reduce future debt loads and, for that matter, make it easier for some students to avoid the expense and time of a college education.

Some progressives don’t want to wait for Congress to act; they’re pressing President Biden to forgive student loan debts by executive order. But it’s hard to imagine a situation in which a president could responsibly spend that much money with the stroke of a pen, without an explicit authorization from Congress.

College debt has had a crippling effect on many of the nation’s young adults, leaving them unable to afford a house or car — or contribute to the economy with those and other purchases. A $50,000-per-graduate payout would eliminate close to two-thirds of the college debt in the nation.

But a one-time payment to a specific group now would leave out many others who need help. For example, consider the graduates who have paid off their loans but are far behind in trying to catch up financially. What about help for them? Even more disturbing, the money would do nothing for the young adults who will emerge from college with crushing debt in the future.

College graduates tend to skew higher wage, so a blanket debt payoff would lavish money on a lot of people who are in a good position to pay off some or all of their debt. Some students needed loans even to attend low-tuition public colleges; others chose expensive private schools and big loans, and put off thinking about what the ultimate cost would be. It would be a mistake to treat them all the same.

Instead of trying to pay off some of the debt being amassed, legislation should address why it’s being amassed in the first place. Biden’s $1.8-trillion American Families Plan would provide a lot more relief for college students at lower cost by making community college tuition-free, providing more Pell Grants for low-income students and offering better financial support for families in general.

And his campaign promises on college debt included several other sensible ideas. One was to improve a program that provides loan relief for college grads who go into some form of public service. A second was to allow graduates to base their loan payments on a lower percentage of their discretionary income than the federal government requires now.

Another worthwhile idea, but not included in Biden’s plan: Charge little or no interest on federal student loans. It’s the buildup of interest that makes the debt load unaffordable for many students.

As for students facing that load of debt right now, the package currently being talked about would forgive too much of what’s owed. Smaller amounts of debt forgiveness, with large amounts targeted only at low-income graduates, would make more sense and be more equitable.

But the president and Congress need to think beyond simply subsidizing students’ educational choices. Any legislation should pressure colleges to reduce costs, largely by reducing the number of administrators. That’s a big part of why U.S. colleges are so much more expensive than those elsewhere, along with an over-emphasis on amenities and sports.

The nation also raises the debt load by requiring college degrees for jobs that didn’t need them in the past, a phenomenon called degree inflation.

A 2017 report by the Harvard Business School found that middle-skills jobs offering decent pay and upward mobility, such as sales representatives, administrative assistants and inspectors, now are hard to fill because employers want college graduates, who would rather find other employment and have high turnover rates in these jobs. Many employers won’t consider relevant experience, even though the skills required for the jobs haven’t changed over time.

Persuading employers not to require an unnecessary college education would avoid some of the college debt we’re amassing. In one of his better moves in office, President Trump eliminated education requirements for federal employees, directing agencies to base their hiring on merit. Private companies are not subject to such rules, but a lot can be accomplished by changing the conversation around education and hiring.