If we want to reduce student loan debt, we have to look at college costs

I’ll gladly pay you Tuesday for a hamburger today. — J. Wellington Wimpy.

If you’re of a certain age, that quote probably seems familiar. You might even be part of the generation at the heart of one of the world’s newest memes. OK, boomers?

That said, Wimpy’s quip is informative to one of the greatest policy challenges we face today. It isn’t a dearth of hamburgers. It’s education costs.

A graduate’s cap draws attention to student debt at the 2017 University of Maine commencement. Ashley L. Conti | BDN

If you’re paying attention to the ongoing Democratic primary, the would-be presidents all have something to say about student loan debt. Bernie Sanders, Elizabeth Warren, and Julian Castro all want to cancel student debt, whether in whole or part. The more moderate candidates have proposals varying from incentivizing businesses to pay off employee’s debts to reducing loan rates to eliminate financial returns for the government.

This debate focuses on how much government will forgo to benefit its citizens. The students are the “consumers.” The government is the “payer.” Schools are the “producers.”

This is where Wimpy comes in. Students promise to pay the government — or other providers — in the future if they can get the tasty intellectual hamburger of education today. In short, they take out a loan.

Congress used one of its greatest powers to keep these loan interest rates down. Not the impeachment power. Not the ability to confirm appointees. No, one of the greatest-albeit-unheralded authorities the Framers vested in Congress was the ability to provide, by law, for bankruptcy.

Student loans are inherently risky. After all, unlike your house or your truck, there is no collateral underlying the loan. A lender can’t foreclose on your mind. Credit cards carry some of that same risk; that is why the average interest rate on a credit card balance is more than 17 percent. Secured debt — like mortgages and car loans — is substantially cheaper; the former is currently averaging less than 4 percent and the latter is just over.

To keep educational loans closer to the low end of the spectrum — they currently average about 5 percent for undergrads — Congress made it very difficult to discharge them in bankruptcy. That makes it easier for lenders to take on the risk inherent in any loan.

However, this has its own market-distorting effects.  Last year, the Maine Legislature raised the age at which people can buy cigarettes from 18 to 21. Older teenagers were deemed not trustworthy enough to make responsible decisions on tobacco use. But, for some reason, you can count on them to fully understand the impact of agreeing to pay someone tomorrow — with interest — for an education today.

Younger Americans have leveraged these policy choices of generations past to borrow large amounts of money. So, now, they find themselves in an uphill battle to repay the debt. Far from millennials “destroying” myriad industries, they lack the financial capacity to hit some of the traditional milestones, like buying a house.

But Democrats’ solutions focus on the wrong target. Sanders wants to eliminate all debt; sounds great. Other candidates want to push loans down to 0%. Wonderful. Yet when money gets cheap, bubbles form. And the costs for education, like health care, are increasing at an unsustainable rate.

Since the early 1980s, college tuition inflation has substantially outpaced general inflation. There are many reasons for this cost hike. And, to give due credit to schools, they have started to slow that growth.

If Democrats really want to solve this problem, they should shift their focus towards preventing another generation from being buried in loans. To do that, education must become more affordable; that means reducing the cost. It means real discussions about the cost and benefits of traditional four-year degrees versus technical and career-focused studies. It won’t be easy to do, as much of academia is politically aligned with left-leaning worldviews.

However, it would be really wimpy to let Generation Z follow in the debt-laden footsteps of millennials without addressing the root cause of why exorbitant student loans are necessary. OK, boomers?

Michael Cianchette

About Michael Cianchette

Michael Cianchette was the chief counsel to Gov. Paul LePage from 2012-2013 and deputy counsel from 2011-2012. A Navy reservist, he was deployed to Afghanistan from 2013-2014 as a trainer and adviser to the Afghan National Police. He is an alumnus of the Leadership Maine program and holds a BA in economics and political science from Boston College along with a JD and an MBA from Suffolk University. He works as in-house counsel and financial manager for a number of affiliated companies in southern Maine.