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We screwed up on this one. What happened was this: the government wanted to encourage people to go to college, but not everyone could afford it. So, the government began to let students borrow money. And pretty soon, private companies got involved as well.

Schools, now able to get money, continued to ask for more. And pretty soon the cost of going to school was growing faster than just about everything else. As illustrated below:

The situation today is absolutely terrible and it's getting worse. “Americans owe about $1.6 trillion in student loans as of June 2024 – 42% more than what they owed a decade earlier.” [1] We must act, and we must take do so quickly before the picture goes from terrible to devastating.

Although it's popular in some circles [2] we have to acknowledging that forgiving student loan debt won't work. Certainly, it will relieve the pressure on individual borrowers who are struggling to make payments. But it won't actually solve the real problem, which is the spiraling cost of education.

If your roof is leaking and you've been collecting rainwater in buckets, it might feel good to dump the buckets outside. But you haven't fixed the leak in the roof.

Not to mention the economic problem of whatever part of the $1.6T balance has to come from somewhere. If you borrowed money to buy a house or a car and then the government cancelled that debt, the bank is in trouble. So the government has to get the money from somewhere. And that means the rest of us pay for it.

Student loans could be converted down to 0% interest. This is a potential compromise that starts the process of helping borrowers without bankrupting the system. It also sets a precedent for new borrowers. It provides relief which is what millions of people need.

In our leaky roof analogy, this gives everyone a bigger bucket and a promise that the rain will slow to a drizzle. But it doesn't fix the hole in the ceiling.

The answer to the student loan crisis has two steps. First, we need to reduce the cost and change the culture of education. The sticker price for a college education is basically a sham, and schools are getting sued for violating antitrust laws [3]. Congress and the courts need to crack down on this destructive behavior. College should be cheaper, and education needs to change to meet the 21st century.

Then there is the culture issue. We are facing a massive shortage in the trades [4] and we have an “overeducated” populace [5]. Not everyone should be jetting off to a $100,000 education in a field that may or may not be worth their time and money. But because the money is easy to get on the front end and the college brochures make life on the quad seem amazing, zillions of young people show up as undeclared majors on college campuses every year. The result is much of that trillion dollar debt.

Second: we need to restructure existing loans and repayment models. The best solution will include multiple paths to paying down existing debt. These include:

• Income-based repayment: For some adults with some degrees in some fields, the amount owed can be a percentage of their income
• Public service grants: For some jobs with a public benefit (e.g. first responders, teachers) grants can be made available to assist with repayment
• Hardship forbearance: In some situations (such as unemployment) loan payments can be reduced or suspended without increasing interests
• Life insurance: For certain borrowers, future life insurance payouts could be used to reduce their principal
• Bankruptcy restructuring: Some amount of student loan debt, like other forms of debt, could be discharged in bankruptcy
• Employer payment: Tax incentives for employers who assist with loan payments when relevant to employment

That's not all, but it's a start. And it's a start we need to get to right away.

Millions of Americans are depending on us. And millions of young people considering their next steps need better options as well.

[1] https://www.pewresearch.org/short-reads/2024/09/18/facts-about-student-loans/

[2] Unsurprisingly, people who have a lot of student debt want it cancelled. In other news, people who enjoy ice cream would love for it have no calories.

[3] Price fixing and price shams, all around.

[4] https://www.mckinsey.com/capabilities/people-and-organizational-performance/our-insights/tradespeople-wanted-the-need-for-critical-trade-skills-in-the-us

[5] You can never know too much, but time and money are limited resources. A lot of people spend years of their lives in college and accrue the debt to match without any real prospects or plans.