Current Student Debt Relief Proposals May Succeed in Spite of Their Shortcomings

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Unless you’ve been sleepwalking for much of the past several years, there’s little chance that you haven’t heard about the massive and growing student debt crisis here in the United States. It’s an issue that’s threatening to swallow up the financial futures of an entire generation, saddling them with a combined $1.5 trillion in debt.

A recent examination of the student debt problem has even found that it extends well beyond when people pay off their loans, as it robs them of the ability to save for retirement – creating a whole new headache. If that’s allowed to continue for much longer, there’s a good chance that American millennials will be the first generation born here to end up worse off financially than their parents. There’s no doubt that something has to be done to solve the problem – the only question is what. Here’s a look at the current proposals, and an alternative that’s already worked elsewhere.

A Central Political Theme

It’s not as if nobody’s trying to address the student debt problem – far from it. Many of the 2020 Democratic Presidential candidates are making it a centerpiece of their campaigns. The details of the individual proposals vary, but all revolve around some kind of cancellation of existing student debt to relieve the pressure on borrowers. In addition, many of the proposals include making undergraduate tuition free at public colleges and universities, which, it’s argued, should prevent a re-occurrence of the problem.

Unfortunately, the numbers don’t agree with that assertion.

The fact is, according to the Department of Education’s own figures, less than half of outstanding student debt came from students borrowing to pay for public college and university educations. That means that eliminating existing debts and making those schools free to attend would only solve half of the problem. Even if future private and for-profit school attendees were to take advantage of student loan refinancing options whenever interest rates fell (as they are right now), they’d still end up buried in debt within a few short years. Then, we’d be right back where we started. What’s needed is a more comprehensive – more Nordic – solution.

A Lesson in Finnish Education

In Finland, educational attainment rates are among the best in the world. Since the early aughts, international education rankings place Finland within the top ten by performance worldwide (for comparison, the US is routinely placed around 30). At the same time, they have no student debt problem to speak of.

All of that success stems from what we Americans would consider a truly radical proposal: an outright ban on private schools. Beginning in 1968, the Finnish government began a nationwide educational system overhaul that made equality its’ central tenet. That meant the elimination of private schools and a complete reworking of teacher training all over the country. Over the 30 years that followed, the system evolved into one that provides equal access to education for all citizens, with attainment rates for upper secondary and tertiary education that hover around 90% nationwide.

Summoning the Will

Even with a functional example of how it’s possible to run a nationwide education system that gets results and doesn’t overwhelm students with debt, there’s little chance that Finnish-style reforms will happen in the US. The simple reality is that the for-profit education sector is too large and politically powerful to ever allow themselves to be legislated out of existence. Instead, it’s far more likely that we’ll see some form of one of the current debt-relief proposals become a reality, in a game of kick-the-can down the road that won’t end the problem.

Then again, there’s some evidence that private-sector educational institutions are already disappearing, at least in some places within the country. If public institutions become tuition-free, that trend could accelerate and render the need to ban for-profit schools moot. If that happens, a student debt bailout could end up solving the systemic problem in a roundabout way. And if the alternative is to explicitly adopt something close to the Finnish model, a slow natural private sector wind-down would be a path of least resistance solution that most people would accept.

Either way, something is going to have to give. The student debt load is unsustainable for many, and it’s eventually going to touch off a much more expensive problem as those with outstanding loans reach retirement age – which is already becoming a reality. That means that the clock is already ticking – and a solution – any solution – is preferable to inaction.

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