I really like Megan McArdle’s ability to cut right through thickets of confusion, deception, and irrelevance to arrive at the most sensible policy path. In this Bloomberg View piece, Stop Giving Everyone a Student Loan, she does just that. The piece was inspired by the refusal of a group of young people who have big student loan balances but little prospect of paying them off because they “invested” in degrees that aren’t likely to pay off. (That fact ought to embarrass the crowd that keeps saying that college provides a student with a huge lifetime earnings boost, but I’m sure it won’t.)
She acknowledges that lots of students have been taken in by scams. So have many non-students. “Should the Small Business Administration forgive the debt of some guy who pledged his house to back a no-hope franchise operation? For that matter, what about people who go to a big, public party school and major in sports marketing or tourism? The taxpayer cannot be made responsible for every unwise decision every individual makes, even if the government finances it.”
Exactly.
McArdle favors allowing students to discharge loans in bankruptcy, but also dumping our ridiculous lending system that makes it easy for young people who have scarcely any academic ability or interest to scoop up lots of money they can blow on the college experience. “The easiest way to do this is to stop making the loans directly, then invite private lenders back into the student-loan market — and force them to eat some of the losses. Let them do the job the government has failed to do: Assess which schools and programs actually add economic value and refuse to fund the ones that don’t.”
Letting the feds get into college lending was a huge blunder in the first place (not to mention that there’s no constitutional warrant for the government to be in the business of financing anything) and the only way to stop the waste is to get out. Politicians and bureaucrats are lousy stewards of capital because they don’t bear the costs of being wrong. This is another case where the false compassion of politicians boomerangs to harm the people they claim they’re helping.