Low interest rates and commercial bank credit creation has severely increased the cost of college and the level of student loans associated with getting a degree, particularly in the United States where student loans are backed by the government.
The 2020 Biden administration are floating several ideas to try and address this issue and the huge drag it is on the individual finances and the economy that it is. It is yet to be seen if these will be effective, and even if they are whether they will be fair to savers and those that were more responsible with their finances if they further expand the money supply or create further moral hazard for the future.
To help prevent this, and any solution should most likely include:
- Removal of any government guarantees so that banks and other institutions are much less likely to lend to people who can’t afford it, and would drastically decrease the cost of college, which is determined much more by what people are willing/able to pay rather than what it costs.
- Remove the clauses that stop people from defaulting on college loans when they declare bankruptcy. This again would introduce risk to the lender for the loans, meaning that banks would be less likely to create credit to fund college loans and keep college affordable, and also give a way out for heavily indebted graudates. It would also mean that cancelling student loan debt still comes with a cost to the borrowing, going someway to make it fairer for those who do choose to pay off their debt.
