Even before he took office, President Donald Trump was already securing major policy wins. Trump’s election induced the Biden administration to withdraw two pending regulations that would have canceled over $250 billion in federal student loans, without congressional approval. Biden officials judged that they did not have enough time to finalize the loan cancellation plans before the new administration takes over.
Conservatives can take a victory lap on student loan cancellation, but they should remember that the underlying problems in the federal student loan program remain unsolved. Even without cancellation, millions of students are unlikely to repay their loans in full, simply because they borrowed too much relative to the economic value of their education. Fortunately, the new administration has tools at its disposal to fix this problem.
In the private market, lenders assess whether a prospective borrower is likely to repay their debts in full — and decline to lend when they doubt the borrower’s ability to repay. It is not so with federal student loans. The federal government uses taxpayers’ money to make loans, so there’s no direct financial incentive to ensure those loans will be repaid.
According to current practices, any eligible student attending an accredited school can get loan funding, even if it’s obvious that the student won’t earn enough to repay the loan. The Congressional Budget Office estimates that taxpayers will lend $90 billion to students this year, but only $68 billion of that will be repaid.
Universities take advantage of these easy-money policies to offer wildly expensive degrees in fields with low earnings. Columbia University offers a master’s degree in film where students borrow $180,000 in federal loans, only to earn a starting salary of just $30,000. The University of Southern California charges $115,000 for an online master’s of social work.
Wealthy universities jack up tuition in order to take in more cash, confident that students can simply borrow more from the federal government to cover the costs. When students don’t earn enough to repay, those costs are passed on to taxpayers.
Ideally, Congress would act to fix the student loan program and hold universities accountable when students cannot repay their debts. But if student loan reform proves too tall an order for a busy Congress, Trump’s Education Department has the power to act on its own.
The Higher Education Act requires the education secretary to ensure that colleges and universities using federal student loans are upholding high standards of quality. Specifically, the law stipulates that institutions participating in the student loan program must “provide for the implementation of a quality assurance system, as established by the secretary … to ensure that the institution is complying with program requirements and meeting program objectives.” Yet past secretaries have never acted on this authority.
Education Secretary nominee Linda McMahon could invoke the “quality assurance” authority to require colleges to ensure that federal student debt burdens are not excessive relative to what students can expect to earn after they finish their degrees. In an issue brief for the Foundation for Research on Equal Opportunity, I propose such a quality assurance system that would prevent over 2 million students per year from taking out loans they cannot afford.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
If such a system were in place, taxpayers could save up to $10 billion a year by no longer making loans that are almost guaranteed to go bad. Even more importantly, colleges would face better incentives: to keep using federal loan dollars, schools would need to cut tuition and offer degrees that actually lead to good-paying jobs. Master’s degrees in film that cost $180,000 would no longer fly.
Rolling back the Biden-era loan cancellation efforts is only half the battle. To truly plug the student loan program’s drain on the nation’s finances, conservatives need to think about how to proactively stop bad loans from going out the door in the first place. The Biden administration’s surrender on loan cancellation means the momentum on this matter is with Trump and his new administration. They have a golden opportunity to fix the student loan program for good.
Preston Cooper is a senior fellow in higher education policy at the American Enterprise Institute.
This article was originally published at www.washingtonexaminer.com
