The Department of Education is responsible for issuing federal student loans. I don’t know about you, but I find this absolutely insane. Shouldn’t we give this task to the Department of the Treasury instead?
Not only is the Department of Education ill-equipped to handle loans and credit analysis, but by issuing loans, it also represents a particular conflict of interest for the department. At the very least, this is hardly best practice. Then again, Washington is world-famous for giving the wrong people—or departments—the right job, and by that, I mean delegating work to the worst possible solution available on purpose.
The Department of Education administers all federal student aid programs, including loan origination and collection of federal student loans. The department also sets policies, manages loan servicing, and acts as a de facto student loan clearinghouse.
If student loans were overseen by the Treasury Department, there would be a seismic shift in the way the federal student loan business was managed. Credit analysts would assess creditworthiness and manage financial risk, such as loaning money based on income and verifying repayment plans, deferment, and forgiveness programs. Analysts would likely turn down loan requests if students seemed unable to repay those loans in a timely manner. All in all, this would represent a turn toward fiscal accountability, which the Department of Education currently does not have to deal with.
Credit analysts would also oversee risk management, which, in this case, would mean loaning money to students based on the degree program they were seeking. If a student wanted $250,000 for a four-year degree program that would not yield the market-based return that the analysts benchmark their analysis to, the student would not receive the loan. It’s simple. While evaluating the long-term sustainability of federal student loan programs involves more than just evaluating individual borrowers’ creditworthiness, fundamentals should still play a big part in the granting of loans. Otherwise, students are beholden to the Department of Education and, in many ways, the department’s politics.
Just imagine for a moment, a Treasury Department credit analyst, who is an education specialist, directing a student into a degree program that best fits that student’s capabilities, with a strong focus on earning potential and future productivity. An educational financial adviser. One who could direct the student down a useful educational path and also ensure a financially responsible outcome. I wish that type of America existed.
At the moment, student loans issued by the federal government have become partisan folly. And while federal student loans serve a public policy objective of expanding access to higher education, particularly for low-income students, this is widely abused.
Here is what the White House recently stated about federal student loan forgiveness: “The plans, if implemented, would provide debt relief to over 30 million Americans when combined with actions the Biden–Harris administration has already taken to cancel student debt over the past three years. While Republican elected officials try every which way to block millions of their own constituents from receiving student debt cancellation, President Biden has vowed to use every tool available to cancel student debt for as many borrowers as possible, as quickly as possible.”
The White House goes on to say the plan will forgive up to $20,000 of the borrower’s balance, “regardless of their income.”
A closer look shows the truth.
According to recent data from the Education Data Initiative: “43.2 million borrowers have federal student loan debt. The average federal student loan debt balance is $37,088, while the total average balance (including private loan debt) may be as high as $39,981.”
I’m not trying to be insensitive here, but an average loan balance of $37,088 is hardly debilitating.
For the most part, the American dream is not accomplished by going to college; it is accomplished by hard work, dedication, and drive. Just look at how many American college dropouts have created multibillion- or trillion-dollar companies. Yes, college can help—especially with core skills—but it’s not much help if students are radicalized, brainwashed, and graduating with worthless degrees.
Congress needs to rethink the federal student loan program and shift responsibility and management of the program to a proper financial department. This is common sense. Unfortunately, any significant changes to the federal student loan program would require legislative action, and that would take a long time to accomplish. We can only hope that Congress will retool the student loan program, stop the system from falling victim to constant partisan abuse, and recalibrate objectives to create the strongest American workforce yet.
