Opinion: Biden's student debt scheme fails to address the root cause

TOPSHOT - An activist holds a sign thanking US President Joe Biden for cancelling student debt, during a rally in front of the White House in Washington, DC, on August 25, 2022. - Biden announced on August 24, 2022, that most US university graduates still trying to pay off student loans will get $10,000 of relief to address a decades-old headache of massive educational debt across the country. (Photo by Stefani Reynolds / AFP) (Photo by STEFANI REYNOLDS/AFP via Getty Images) ORIG FILE ID: AFP_32H37JK.jpg
TOPSHOT - An activist holds a sign thanking US President Joe Biden for cancelling student debt, during a rally in front of the White House in Washington, DC, on August 25, 2022. - Biden announced on August 24, 2022, that most US university graduates still trying to pay off student loans will get $10,000 of relief to address a decades-old headache of massive educational debt across the country. (Photo by Stefani Reynolds / AFP) (Photo by STEFANI REYNOLDS/AFP via Getty Images) ORIG FILE ID: AFP_32H37JK.jpg

As our nation’s largest student loan lender, the federal government, maintains a zero percent rejection rate, essentially anyone who wants a student loan can get one without difficulty. The student is given the power to accept or reject any financial aid.

Unlike private lenders, the Department of Education does not underwrite student loans to assess the risk of default. Pivotal factors for private lenders, such as the student’s selected degree path, the graduation rate at their determined school, and the likelihood of default, are not considered by the government.

A student can accumulate the same debt load pursuing a gender studies degree from Ohio State University as they can for a chemical engineering degree. While the difference in risk between these two degrees is obvious, the federal government refuses to take it into account. With nearly no limit on the amount students can borrow, providing no underwriting fails both the borrower and the lenders (America’s taxpayers).

Nearly 40% of borrowers are expected to default by 2023. Ultimately, taxpayers are responsible for any federal student loan that enters nonpayment or receives forgiveness. When student debt grows, so does taxpayers’ vulnerability. Of course, it is impossible to comprehend this financial exposure while the federal government maintains a zero percent rejection rate.

It does not take an economist to understand the glaring relationship between this federal assistance and outrageous tuition prices. Fueled by a desire to expand access to higher education, the federal government increased opportunities for students to receive financial aid through grant and loan programs. This policy empowered universities to increase tuition rates without any decline in enrollment.

This relationship laid the foundation for the student debt crisis that followed. The easier it became for students to secure a diploma through federal funding, the higher universities could raise tuition rates. Yet, even as student debt steadily accrued over $1 trillion, the government merely continued to funnel millions of new students into a loan system that existing borrowers were already struggling to escape.

If universities know the government will be there to forgive student loan debts, then how are they incentivized to keep tuition rates low, offer quality degree pathways, and prepare students for high-paying jobs? This thinking has led to many institutions stockpiling billions of dollars in untaxed endowments rather than cutting administrative bloat and rectifying devalued diplomas and poor student outcomes.

On Aug. 24, President Biden announced he would forgive $10,000 in federal student loan debt for most borrowers. This vote-buying scheme completely rejects historical trends − the government cannot spend its way out of this crisis. President Biden’s relief plan forces Americans to foot the bill while universities continue to perpetuate the problem.

When presented the opportunity to take meaningful action, Democrats let their obsession with big government "solutions" triumph over sensible policy initiatives. In the name of equity, the federal student loan system was created from generous financial aid initiatives they championed decade after decade.

Less than 10% of Americans held a college degree in 1964. President Lyndon Johnson set forth strategies to grow that number with the passage of the Higher Education Act. This legislation offered "opportunity grants" to universities that enrolled students with substantial financial need.

Because this batch of students was too risky for private lenders to support, legislation formed a student loan program that permitted banks to supply government-insured loans. This shifted the risk of default from private lenders to hardworking taxpayers.

Since then, Democrats have amended the Higher Education Act numerous times to enlarge the government’s involvement in the student loan business. The more the federal government became involved in higher education, the more the institutions could elevate their cost of attendance. President Biden’s student loan relief plan declines to acknowledge this simple relationship.

The sooner we get the federal government out of the student loan business, the sooner future generations can prosper in a fair system where universities are responsible for their students’ outcomes − not taxpayers.

Congressman Warren Davidson, R-Ohio, was first elected to the U.S. House of Representatives in a June 2016 special election and represents Ohio's 8th Congressional District. A graduate of the U.S. Military Academy, he served in the 75th Ranger Regiment, The Old Guard, and the 101st Airborne Division.

Warren Davidson represents Ohio’s 8th Congressional District and is a member of the House Financial Services Committee.
Warren Davidson represents Ohio’s 8th Congressional District and is a member of the House Financial Services Committee.

This article originally appeared on Cincinnati Enquirer: Opinion: Biden's student debt scheme fails to address the root cause