When it Comes to the Student Debt Crisis, Taxpayers Lose Either Way

Source: iStock

Source: iStock

If there was ever a scenario in which there were no winners, the student debt crisis may be it. Thousands upon thousands of graduates are being funneled out of American colleges and universities every year, packing with them, on average, around $30,000 in debt. That is hamstringing a lot of individuals before they’re even able to start their careers, which sometimes requires them to work for free in internships, or move back home with their folks.

Many analysts are calling the student debt crisis the next big economic bubble, and there isn’t any clear way out of it. In fact, no matter what we do, the taxpayers are going to be on the hook for the bill at the end of the day.

We’re up to $1.2 trillion in outstanding student loans, and as of 2014, 17% of borrowers are delinquent or in default on those loans, per a report from the New York Fed. Millions of graduates can’t pay their loans back, and some are even flat-out refusing to. Recent news that the government has decided to forgive the loans for students that were attending, or graduated from, the for-profit Corinthian Colleges, which was found to be little more than a diploma mill, has emboldened others to call for more loan forgiveness from the government.

And some officials have even put a plan together to do just that.

According to a report from The Miami Herald, U.S. Secretary of Education Arne Duncan has set the wheels in motion on a plan that would forgive billions in student loans — at the taxpayer’s expense. The first step of Duncan’s plan is being seen with the current situation with Corinthian Colleges, which is just one of several big education companies that are essentially ripping off both students and taxpayers by profiting off of government-backed loans and grants, then handing out near-worthless degrees.

Duncan told reporters that students “deserve a college education free from rip-off scams,” and that “some of these schools have brought the ethics of payday lending into higher education.”

It’s hard to argue against those statements, as for-profit education companies have proven time and again that they are more interested in padding their profit margins than actually supplying students with a quality education. For good measure, the average debt for students at for-profit colleges was around $40,000 in 2012, while only about one-fifth of them actually graduate, according to ProPublica.

For the ones that do graduate, employment rates are pretty dismal. For-profit school grads earn less on average, too.

Clearly, there is a problem with higher education, and there’s no easy fix. But with Duncan’s plan and unprecedented decision to start forgiving loans for certain students, it’s hard to determine whether this is the best course of action. After all, if you forgive one set of loans for students who feel they were ripped off, how do you ignore the millions of others? Even students who went to private schools and now are stuck with a B.A. that cost hundreds of thousands probably feel betrayed by their schools, in some aspects.

Here’s the pickle we’re in: if we adopt a plan similar to what Duncan is proposing, and give students a bailout package that forgives their student loans, the taxpayers will be on the hook to cover it. But, if the crisis isn’t addressed, and the bubble bursts, the taxpayers will still be called upon to deal with the fallout.

In short, there’s no winning.

Many taxpayers don’t want to go ahead with forgiveness programs because they feel their dollars shouldn’t go toward subsidizing some student’s bad decisions in regards to school choice and major. That’s perfectly reasonable. Yet, it doesn’t help the problem — which everyone, including the government, has refused to address for decades. As the crisis comes to a head within the next few years, it’s going to be time to pay the piper.

What we’ll end up with is an entire generation of economically-stunted college graduates who can’t afford to buy cars, houses, or start families or businesses because of their crushing debts — or a huge bill that the taxpayers will have to cover in order to bail them out.

Either way, it’s going to cost us all a lot of money.

Follow Sam on Twitter @SliceOfGinger

More from Business Cheat Sheet: