The caps have landed, and the cheers have faded. But, as an Associated Press report in the June 6 Albuquerque Journal Outlook rightly suggests, what’s now left of the university experience is the fear of opening the mailbox.
Federal Reserve Bank estimates put student loan debt at over $1 trillion. An April 2016 Wall Street Journal report indicates the rate of default, delinquency and postponement on these loans runs higher than 40 percent. The socioeconomic ramifications of such debt stretch well beyond GDP growth headwinds to include long-term individual financial fragility, the consequences of delayed household formation, and even, perhaps, romantic partner selection based on debt levels of potential partners, thus exacerbating wealth concentration.
As the adage holds, “debts that can’t be repaid won’t be repaid.” Historically, our national economic fortune has been made possible by “growing our way” out of financial difficulties. How, though, can the difficulty of the student debt problem be solved by growth, when growth is obstructed by the debt itself? Perhaps unorthodox solutions should be considered.
Of such whispered policy solutions, the most quietly voiced would have to be that of student debt forgiveness – a so-called “debt jubilee.” For debts that won’t be repaid, that would not be unprecedented. Since the first recorded use of debt roughly 5,000 years ago in Mesopotamia, the use of the “jubilee” to expunge unpayable debts has occurred across cultures and with some frequency.
If ever uttered in circles of policy wonks, any discussion of a “jubilee” on student loan debt would surely be silenced by two words: moral hazard. These words conjure thoughts of the collapse of Bear Stearns and Lehman Brothers. When a borrower does not face the risk associated with a loan, no disincentives exist to continued borrowing. With risky behavior validated, it is likely to be repeated.
A distinction, however, must be drawn. Student loan debt is qualitatively different from consumer debt. A borrower takes student loans on for a singular purpose: a diploma. This is a largely onetime event, which, due to biological, social and institutional constraints, will never be replicated as with other forms of consumer debt incurred through acquisitive pursuits.