Richard D. Gann, JD
A student loan represents a calculated risk by the borrower that an investment in education today will result in a higher income tomorrow. More specifically, a rational borrower must believe that the additional income attributable to one’s college degree will be at least as much as the cost of servicing a student loan.
Every year, future professionals in fields such as medicine, law, finance and engineering make sensible and assumingly profitable decisions to invest in their education. Based on public data, we can identify multiple fields of study that offer strong potential for future income. Conversely, there are many college degrees that consistently provide little opportunity for gainful employment, let alone a high income.
In a free-market economy, one’s income potential is largely a function of the supply and demand for his or her skills. As a result, the market assigns greater value to some knowledge (e.g., cardiovascular surgery) than others (e.g., French literature).
This is not to suggest that any one scholastic pursuit is more worthy than another. Americans should be free to spend their own tuition dollars however they darn well choose. Knowledge, as they say, is its own reward.
Except when you borrow to pay for tuition. Education then becomes a financial decision and not merely an intellectual endeavor. Using borrowed funds to finance a purely academic degree may be irresponsible, both for the borrower and the lender.
If all student loans merely involved private lenders, we could safely scoff at such questionable lending practices without much pecuniary concern. Unfortunately, what may seem like an astronomical amount of outstanding student loans today was either guaranteed or issued by government agencies. If you are a taxpayer, you may feel like you’re indirectly a student lender.
Which is why the momentum behind student loan forgiveness may trouble you. I’ve read many articles in which borrowers seem characterized as “victims” in a student loan “trap” by being forced to repay their unfair debt! The situation is often described in epidemiological terms, as if student loans are a plague for which borrowers bear no responsibility.
As a young man, in addition to working I borrowed to help pay for my undergraduate degree from a public university and my juris doctorate from a private law school. In my 30s and 40s, I occasionally wished for the nicer car or the bigger house, but instead I continued to meet my legal and moral obligations to repay my loans. Eventually I paid back every penny, without regret or resentment, because those loans had generated a very reasonable return on my investment. My student loans provided Sallie Mae ongoing interest on my student debt over many years.
In today’s brave new world, however, we are seeing a movement to forgive outstanding student debt and this may cause higher taxes. The loan-forgiveness movement may not be entirely a product of naive sentimentality or wealth redistributionism. The home building industry, for example, requires a constant supply of credit-worthy homebuyers; high student loan debt is impacting their FICO scores. We can guess where the leviathan building lobby likely stands on the student loan issue. Credit card companies may also like to see student loan debt disappear.
I feel taxpayers must do more than sit on the proverbial porch and grumble about hipster tattoos and avocado toast. Some politicians are seriously proposing to transfer billions of dollars of debt off borrower’s balance sheets. Taxpayers, Mom-and-Pop landlords and small business owners who may already be overwhelmed with taxes and regulations could potentially see an increase in their tax liability if that happens.
Should we start steering student loans away from degrees that may not lead to paying jobs?
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