COMMENTARY | America’s student debt crisis has seen some positive movement recently with the creation of income-based loan repayments and eventual debt forgiveness, allowing college grads who took out federal student loans to pay back only a fixed percentage of their income and, after a period of time, to be absolved of the remainder of their debt. The idea, of course, is that many high-earning college grads will pay back enough to make up for the many low-earning college grads who cannot pay back much. The doctors, [employed] lawyers, engineers, accountants, and business professionals will pay back big bucks that will compensate for the little bucks (or no bucks) paid by the artists, freelance writers, journalists, adjunct profs, nonprofit employees, and under- and unemployed grads.
Unfortunately, the Brookings Institution, specifically its Brown Center on Education Policy, has found that these programs may quickly end up costing taxpayers a pretty penny, reports ABC. As more and more college students take advantage of these programs, the tax burden will grow. The problem will be compounded as society pushes ever-higher percentages of high school graduates into college while fewer and fewer “good jobs” await them. Increasing numbers of college graduates will not be able to repay their student loans under time-limited, income-based payment plans. This leaves taxpayers to handle the remainder, burdening society as a whole.
Who wins big? Colleges and universities. More and more students will happily pay outrageous tuition and fees, knowing that their student loan repayments are limited. As a result, colleges and universities have no incentive to control costs. Government student loan income-based repayment plans and debt forgiveness plans keep students taking out big loans, knowing there are generous safety nets after graduation. Colleges get paid, students get their degrees and get to pursue their dream jobs, and taxpayers eventually get the bill.
Instead, the government needs to assist in the creation of legislative and physical infrastructure for a human capital market, where private investors can help fund students’ higher education based on a belief in future profitability.
Allowing investors to purchase shares of college students’ future income will provide lucrative IPOs for motivated, hardworking college students, eliminating their need for student loans while not leaving taxpayers with the bill. Promising college students will have their educations funded by investors while slackers will find that nobody wants their shares, providing great incentive for high school students to develop and maintain good transcripts and resumes prior to arriving on college campuses. Colleges, knowing that not every student will receive guaranteed loans, will become most cost-conscious.
The free ride would be over for both colleges and for slacker college students, bringing back academic rigor and a focus on performance. Investors would help those who need and deserve help, making a fair profit over the long run in return, and much of our student debt crisis would quickly be eased. Students who do not find investors the first time around can work hard to improve their resumes and seek investors later, boosting work ethic and returning a sense of performance-based reward to the American dream.