Student loans are in the news again thanks to Democratic candidates. But as they base their campaigns on promises that would essentially shift the burden from students to taxpayers, top Wall Street executives aren’t waiting for things to go from bad to worse to sound the alarm. After all, student debt is affecting the economy — and not in a good way.
In an interview with Yahoo Finance, JPMorgan CEO Jamie Dimon called the U.S. student-lending program a “disgrace,” stating that the federal government was and continues to be irresponsible for issuing $1 trillion of student loans since 2010.
When asked about Democratic presidential candidates Sens. Bernie Sanders and Elizabeth Warren and their plan to pass legislation that would forgive America’s student-loan borrowers, Dimon expressed sympathy toward students who need help. However, in an April letter to JPMorgan shareholders, Dimon said that “irrational student lending, soaring college costs and the burden of student loans have become a significant issue,” adding that “a $1,000 increase in student debt reduces subsequent homeownership rates by 1.8%.”
With more student forgiveness and “free college” policies in-store, presidential candidates are sure to make a government-created mess a catastrophe.
To Shift the Responsibility Won’t Make Student Debt Go Away
Currently, students in the class of 2017 owe $28,650 on average. And there are more than 44 million former students with $1.5 trillion in student loan debt.
According to candidates like Pete Buttigieg and Sen. Kamala Harris, public college should be debt-free for low-income students, putting the cost of going to college in the hands of taxpayers, not students themselves. Others, like Sanders, are also vowing to cancel all of the nation’s outstanding student debt, wiping the slate clean for the nearly 45 million borrowers in debt today.
But while promises of free college may sound good on paper, the reality is that government-backed “solutions” to education issues are precisely why college is now unaffordable.
When the government entered the student-loan business, it created an artificially high demand for college, as it made it easier for students of all income brackets to get a college degree.
With universities seeing this demand boost, they had to increase their tuition costs to keep up, making college more expensive than it would have been otherwise.
Furthermore, this college bubble produced yet another unintended consequence, as individuals who would otherwise be less likely to take on student debt ended up pursuing degrees that didn’t quite help them in the long run.
Now, as we see a number of Americans holding degrees that are virtually useless, we’re seeing an increase in the demand for work that doesn’t require formal education. This is disrupting the U.S. economy, as essential jobs aren’t being fulfilled while countless college-educated Americans remain un- or underemployed.
If Sanders or any other of the Democratic candidates proposing free college get their way, this is only going to get worse, as college will be literally free to some but costly to taxpayers. This will further balloon the education industry, forcing colleges to increase their tuition even more and making it difficult for students in the middle-income bracket to pursue their degrees.
To those who do not fall in a low-income bracket, subsidized education won’t be available. And they will have to figure out on their own how to pay for college. In their case, the costs will be so high that even-greater student debt will be necessary, hurting their credit and their future, while others get free degrees thanks to taxpayer-backed funding.
As Dimon correctly put it, the current U.S. student-loan policy is, indeed, irrational. But most importantly, it’s irresponsible and it’s hurting those who need help the most, as “free college” is making it impossible for many to find meaningful and gainful employment.
If Democrats truly cared about the well-being of their base, further inflating the college market would be the last thing on their agenda.