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Want to solve the student debt crisis? Get rid of federal student loans

Most of us are aware of the looming possibility of a major debt crisis in America: Student loan debt now totals about $1.5 trillion, a staggering sum and a huge potential for catastrophic defaults. As one writer recently argued, the solution is really quite simple: Get the federal government out of the loan business.

“It is time to shut down the Bank of Uncle Stupid,” Kevin Williamson argues at National Review. 

One of the principal effects of easy government-backed student loans, Williamson notes, is “tuition inflation.” Inflation, he writes, is the result of “an increase in the money supply,” a phenomenon that is not merely limited to printing money. Put another way: “If you make a few gazillion dollars available to finance tuition payments with underwriting standards a little bit lower than those of the average pawn shop, you create a lot of potential tuition inflation. Another way of saying this is that if Uncle Stupid puts a trillion bucks on the table, there are enough smart people at Harvard to figure out a way to pick it up.”

One way to solve the problem of student loans, Williamson says, is to “make students, their families, and, most important, the institutions themselves carry their own water.” The current system, he writes, “is exploitative: The students essentially function as a conveyor belt carrying government money into the universities, leaving borrowers instead of taxpayers on the hook because it looks better from an accounting point of view.”

Williamson proposes “a three-part plan for something practical the federal government could do to relieve college-loan debt.”

Step 1: The federal government should stop making college loans itself and cease guaranteeing any such loans. Step 2: It should prohibit educational lending by federally regulated financial institutions or, if that seems too heavy-handed, require the application of ordinary credit standards in any private educational lending, treating the student himself as the main credit risk in all cases, including those of secured or unsecured loans taken out by parents or other third parties for that student’s educational expenses. And 3: It should make student-loan debt dischargeable in ordinary bankruptcy procedures.

“Don’t reform student lending, don’t try to lower the interest rates or create special debt subsidies for college graduates who follow careers of which the people with political power approve,” Williamson writes.

“Just get rid of it. With a meat ax.”

Read the article here.

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