President Donald Trump's newly passed spending bill is set to overhaul the federal student loan system.
- The federal student loan program has inadvertently made college unaffordable, increasing student debt.
- Federally subsidized loans have incentivized colleges to raise tuition costs, capturing a significant portion of the loan amounts.
- Privatizing student loans would encourage responsible borrowing and incentivize universities to lower costs and offer more valuable degrees.
- The current system benefits neither the government nor students, with the government projected to lose money on federal loans.
Over a series of columns in recent weeks, I have argued that the federal government has no role in the field of education. However, I have neglected to dedicate a column to our government's most significant offense: the federal student loan program.
Now's the time to write that our government should get out of funding college education.
The federal student loan program is well-intentioned, but in reality it has helped make college unaffordable, pricing some students out of the market while sending others into staggering debt for life.
If Republicans and President Donald Trump want to make a genuine difference in the higher education sector, they should focus on dismantling the federal student loan program. Here's why.
Federally subsidized loans have hurt higher education
The cost of college has skyrocketed over the past few decades, far exceeding the expected increases from inflation alone. Students are leaving school with more debt, and roughly $1.6 trillion in debt remains outstanding.
Readily available student loans, which students can obtain without a credit check or proof that they will be able to pay them off, has enabled colleges to significantly increase the cost of attendance, leaving many students unable to pay off their debts by the time they obtain their degrees.
The recent changes to student borrowing in Trump's "One Big Beautiful Bill" (groan) are positive in this regard, putting new caps on the amount that students can borrow annually, particularly for graduate students. Still, this action is only a half measure, limiting the mess that students can get themselves into while also limiting the amount that other advanced degrees, such as those for doctors and lawyers, can borrow.
There are other factors contributing to the college crisis, but these other factors are created by the availability of student loans. Universities being greedy, which they certainly are, is only enabled by the ability of students to pay their artificially high prices, only to be later handcuffed to the debt.
When students have unmitigated access to borrowed funds to pursue college degrees, colleges lose their incentive to keep costs low to remain competitive. A 2019 study found that for every dollar of federally subsidized student loans, colleges capture 60 cents through raising tuition prices. For unsubsidized loans, this figure was roughly 20 cents on the dollar.
It has to be said: Not every degree is equal in the real world
Not all college degrees are created equal when it's time to earn a living. Some pay for themselves more quickly than others, and others don't pay for themselves at all.
Thirty-five percent of degrees from liberal arts colleges and 23% of all other bachelor's degrees result in a negative return on the investment.
However, the unmitigated availability of student loans removes these considerations for most students. Many 17- and 18-year-olds are not making their college decisions through a cost-benefit analysis that they should be, but rather based solely on where/what they want to study.
I know firsthand that these considerations were not top of mind when I was choosing what school to attend and what to study, and that trend seems to be a common theme.
Part of this is the fault of the students themselves, who do not properly plan out their futures. But allowing young people to go into tens of thousands, if not more than a hundred thousand, of dollars of debt in pursuit of a degree with no likelihood that they can pay it back is a predatory lending practice.
Nor is the federal system profitable to the federal government. The government's own estimates expect to lose 19 cents on the dollar of federal loans they administer over the next decade. The system is a loss for the federal government and a loss for prospective college students.
Removing the federal government from the process is the better answer. The student loan market should be privatized.
Private loans won't limit who can go to college
Nobody benefits from the current system. Privatizing these loans would tighten restrictions not on who can go to college, but who can pursue what degrees and at what institutions.
A little more than 7% of student loans are already through private lenders. Private loans would be offered on the same criteria as they are now, and students' likelihood of being able to pay the loans back would factor into their availability and interest rates.
Private loans would not allow people to pursue degrees with a negative return on investment from overpriced universities, but they'd still allow everyone to attend universities with a possibility of paying the loans back.As a result, universities would be disincentivized from charging exorbitant rates for degrees that don't pay off, or at the very least would only be able to exploit students from wealthy families who pay upfront for those programs.
Following the initial shock to the federal loan program's elimination, universities will need to become more competitive to attract the best students possible. This will mean firing useless administrators, slashing funding to wasteful departments and taking other cost-cutting measures to improve value for students.
Introducing free market forces back into the cost of college will benefit students and the government alike, and only limit the extent to which people can enter into loans they will never be able to repay. The only ones who'll lose are wasteful university administrators and Department of Education employees. Sounds like a win to me.
Dace Potas is an opinion columnist for USA TODAY and a graduate of DePaul University with a degree in political science.