Reason TV: We Shouldn’t Bail Out Students in Debt

As college costs continue to increase across the country, student debt has hit the all-time high of $1 trillion and has overtaken the nation’s credit card debt.

And while the government has guaranteed more than half the debt’s totalBarack Obama is pushing to cap the amount any borrower must pay back in a given year and forgive outstanding balances after 20 years. But, in a new video by Nick Gillespie and produced by Meredith Bragg, it is suggested that forgiving student loan debt has the potential to be a very bad idea.

The video points out three key reasons –

1. The loans are voluntary. 

Every lender should and must clearly spell out exactly how much you’re borrowing and what your monthly payments are going to be after you leave school. And while half of all college students  borrow against future earnings to get a degree, they will increase lifetime earnings by somewhere between about $280,000 and $1 million.

2. While the overall sum is overwhelming, the individual loan amount is not that great.

The typical college graduate owes about $25,000. Reason points out that the monthly payment for $25,000 in student loans at going rates comes to around $290 a month. And given that college graduates unemployment rates are less than half the national average and that the average salary offer for graduating seniors is almost $50,000, a figure that makes the monthly repayments relatively manageable.

3. Bailouts are never a good idea. 

It is a commonly held belief that bailouts for big banks and financial institutions that are politically connected is morally wrong. But Reason believes that student loan forgiveness advocates are just perpetuating yet another cycle of bailouts.

“It’s never right to socialize losses while privatizing gains. That’s what the banks did – they risked their money on stupid investments and then got made whole at the expense of taxpayers.”

College is a huge and expensive commitment, but some believe that heavily subsidizing the loan system could make the process even more costly.

“Letting people off the hook for loans they made with full knowledge of the costs will not only dissuade anyone from lending to students with no collateral other than their future work output.”

It will make it that much harder to argue against the next call for bailouts from the next group of special interests, says Gillespie and Bragg.