Student Loan Debt Continues To Grow

According to data from the Federal Reserve, student loan balances grew by $23 billion from the second to the third quarter. SchiffGold reported that 45 million Americans owe $1.7 trillion in total student loan debt. The total outstanding loan balance has grown by $54 billion during the past year.

What is interesting is how enrollment in colleges and universities plummeted by over 231,000 students to 17.97 million from 2018 and 2019. The trend of falling university enrollment has been present for some time. In 2011, for example, there were 20.14 million students enrolled at colleges and universities. From that point until the present, enrollment fell by 10.8 percent.

The SchiffGold piece explained why student loan debt continues to increase despite the decline college enrollment:

One of the reasons student loan debt continues to increase despite falling college enrollment is the glut of student loan money pushed up the cost of a college education. The federal government pushed the widespread availability of student loans. It was supposed to make it possible for everybody to go to college. But there was an unintended consequence. It made a university education unaffordable and ended up saddling millions of Americans with crushing levels of debt.  Studies have shown the influx of government-backed student loan money into the university system is directly linked to the surging cost of a college education.

Additionally, student loan balances continue growing due to borrowers being delinquent on their loan principal payments, which SchiffGold noted:

Another reason student loan balances continue to surge upward is that borrowers aren’t making payments on their loan principal. This was a trend before the pandemic that has accelerated in the year. Many student loans were moved into automatic forbearance as the coronavirus economic chaos unfolded. President Trump signed an executive order extending interest-free federal student loan forbearance through Dec. 31, 2020.

Over 1 in 4 student loan borrowers have been either delinquent or have defaulted on their loan payments.

While campaigning, Democrat presidential candidate Joe Biden vowed to implement student loan relief. Under Biden’s plan, $10,000 of outstanding student loan debt would be forgiven for all borrowers. In sum, Biden’s plan would only wipe out roughly ⅓ of total student loan debt. On top of that, the presumptive president-elect’s plan would slash the repayment percentage from 10 percent to 5 percent of discretionary income for individuals making $25,000 annually or more and would also defer payments interest-free for low-income earners — individuals making $25,000 and lower.

We should always be skeptical of government programs that sound too good to be true. None of these plans are “free” in the way that many progressives market them as. SchiffGold spells out what the real costs of student loan forgiveness entails:

It’s important to remember that student loan forgiveness doesn’t mean Joe Biden just waves a magic wand and erases the debt. The federal government backs these loans, but private lenders actually made them. The lenders will get their money – courtesy of Uncle Sam. In effect, the federal government will have to borrow the trillions of dollars necessary for student loan forgiveness and add it to its $27 trillion debt. In other words, the debt will simply be transferred from the student-borrower to the American taxpayer.

This is relevant at a time when a number of elected officials such as congresswoman Alexandria Ocasio-Cortez are pushing for student loan forgiveness, with other Democrats jumping in to set the agenda straight in the first few months of a presumptive Biden administration. Such a policy would be a subsidy to colleges and put many hard-working Americans on the hook for the decisions of people who likely did not exercise prudence when selecting a major.

Student loans are just another in the long line of spending items that the U.S. government splurges on. The consequences of such irresponsible behavior are far-reaching and could generate a massive fiscal crisis. With the U.S.’s easy money system already in place, another large spending program will only accelerate America’s fiscal and monetary demise. Other alternatives such as seizing and taxing university endowments, make more sense than bailing out universities and students who chose questionable majors. However, politicians will likely ignore these tough policy alternatives.