The Higher Ed Bubble
Millions Late on Student Loan Repayments

Eye-opening statistics on student debt from the Wall Street Journal this weekend:

Nearly 7 million Americans have gone at least a year without making a payment on their federal student loans, a high level of default that suggests a widening swath of households are unable or unwilling to pay back their school debt.

As of July, 6.9 million Americans with student loans hadn’t sent a payment to the government in at least 360 days, quarterly data from the Education Department showed this past week. That was up 6%, or 400,000 borrowers, from a year earlier.

That translates into about 17% of all borrowers with federal loans being severely delinquent, a share that would be even higher if borrowers currently in school who aren’t yet required to repay were excluded. Millions of other borrowers are months behind but haven’t hit the 360-day threshold that the government defines as a default.

Severe delinquencies are rising despite the sharp drop in unemployment over the past year and a big push by the Obama administration to enroll borrowers in programs that lower their monthly payments. Delinquencies on other types of debt such as credit cards and mortgages have fallen. And shorter-term defaults on student loans have declined over the past year.

The latest figures highlight how student debt—which has tripled over the past decade to $1.19 trillion, according to the Federal Reserve Bank of New York—has quickly become a crushing burden for more Americans.

The system we have built isn’t working. The investments we as a society are making in the higher ed system aren’t generating the returns needed to make the numbers add up: students just aren’t earning enough money as a result of their degrees to pay for the cost of getting them.

So what do we do? Basic blue theory says college and grad school are good in and of themselves, and so we should just pump more money into the system, which ends up meaning more loan forgiveness and more subsidies. Hillary Clinton’s “reform” blue stance appears to use federal oversight to try to put a lid on some of the more egregious sources of bloat in higher ed, but at the end of the day amounts to the same thing: pump more money into a broken system that won’t be changed very much through top-down enforcement. And red state populists, for their part, say screw the colleges, which are hotbeds of radical leftist thought anyway.

None of these approaches really gets at the balance the country needs.

The education mess is a lot like the health care mess: the combination of federally mandated costs and controls, runaway cost inflation driven by insiders who keep jacking up the price, perverse market incentives in a warped marketplace, dysfunctional mandates, guild controls and crony regulations, all have produced a system in which costs are increasingly out of line with true value—and with society’s ability to pay.

Yet in both education and health, the United States has built systems that in many ways are the envy of the world. We don’t need to call in the bulldozers to destroy everything; our job is one of pruning and tending rather than clear cutting.

But the pruning and tending itself cannot be superficial. And the longer we put off the process of real reform, or waste time with big reform efforts that don’t do enough to help (yes, Obamacare, we are looking at you), the harder the conversion process will be, and the longer it will take for us to realize the incredible gains when our education and health systems are actually living up to their potential in an economically sustainable way.

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