Does Student Loan Forgiveness Encourage Bad Decision-Making?

student loan debt and bad decisionsPeter Morici, an economist and professor at the Smith School of Business, University of Maryland, claims that forgiving student loan borrowers of their debts will lead only to more bad decisions.

There’s a move in Washington to do something about student loan debt. Senators propose freezing student loan interest rates. Federal agencies issue reports.  And, of course, there’s the rolling tide of bills to get private student loans rendered dischargeable in bankruptcy cases.

No wonder: not only is there more than $1 trillion in student loan debt outstanding, but people have finally woken up to the fact that a college degree doesn’t buy you a ton of access to a well-paying job.

Morici argues that letting borrowers of student loan debt off the hook will do nothing but condone their bad financial moves and make the problem worse.

Students, he says, don’t choose the right majors; rather than science and math, they pick majors like English and Philosophy rather than courses of study that lead to gainful employment.

Spoken like a guy who’s forgotten what it’s like to be a college student.

What Morici doesn’t realize is that students go into college in part because they’re told that it’s the only way to achieve greatness. From early in life, kids are taught that it doesn’t matter if they know what they want to do – they’ve got to hit college as quickly as possible.

Once they get to the door of higher education, they’re shown an enormous bill along with an offer of student loans. Of course they sign on the dotted line and accept the money – everyone has been telling them that they have to do so.

Mom and dad, teachers and other authority figures tell you that you’ve got to go to college.

The college tells you that the only way to afford it is to take on student loan debt.

In other words, everyone in your life has essentially been telling you that you need to take out student loans or your future is going to be terrible.

Once you get to college, you’re told to try out different classes until you determine a major. You’ve got time, after all – sample from the menu before settling on a main course.

English, philosophy, and all the liberal arts classes come first. You can go to a scientific major but you won’t unless you intend to go into a field related to that major.

At 18 years old, there’s a pretty good chance that you’re not in a position to make that sort of commitment.

There’s the problem. You’ve been sold on student loan debt as the bedrock of a bright future, yet the university into which you place your trust fails to deliver value commensurate with your financial obligations.

Forgiveness of student loan debt, therefore, merely shifts the burden back to those best able to bear it in the first place.

If universities want to remain able to offer loans, they need to produce graduates who don’t seek to discharge their obligations. Too high of a discharge or default rate jeopardizes their ability to offer new loans, after all.

In order to keep funding new loans, therefore, universities are placed in the position of counseling students on the effects of taking out student loans. Not only that, they become responsible for educating their students effectively and making a real effort to place graduates in employment situations that offer a salary significant enough to pay off that student debt load.

If there are no jobs for graduates, the hallowed halls of education need to change.

Costs need to be brought in line with the market reality.

The course of study needs to adapt to the world in which we live.

Students must be taught exactly what they’re getting themselves into when they sign up for a student loan.

Student loan forgiveness forces the university’s hand, it doesn’t encourage more bad decisions on the part of America’s next generation.

Image credit:  marsmet531

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About the Author:

I've been a consumer protection lawyer since 1995, working to help people end their bill problems. I'm a faculty member at the Student Loan Law Workshop, a nationally recognized speaker, and a long-time member of both the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.