The staggering amount of student loan debt is a pivotal issue for our day. This is not a problem that will go away, this is not a problem that can be solved by blaming the victim (student). This is a problem that requires solutions. Here I present my modest proposal of tuition refunds.
The right framework to think about the student debt problem is a product safety recall or product liability lawsuit for a defective product. The reason that the amount of student loan debt is too high is that the cost of college is in excess of the fair value. The issue is not that students used debt to finance their college, but that the cost of college was chronically in excess of the fair price. Whether the student used debt to pay for college and is now faced with owing principal on a loan they cannot afford, or had used savings to pay for college and is now lacking in savings, the result is the same: the cost of college was a product defect.
Stating the issue is the student loan debt would be like saying that a person that bought a defective car using a car loan should have their car loan forgiven. That is incorrect, the fault lays with the car dealership that sold the car and they should have to pay restitution. The lender is not a beneficiary and should not be punished.
This is the proper way to frame the student debt issue. It is not the fault of the taxpayers (lenders) that the product (college degree) was defective. That responsibility lays with the seller of the product, the college.
Framing the problem properly as the historical cost of college, and not the loan, has the dual benefits of (1) focusing the solution on the entity that gained from the defect: the college and (2) treating everyone who attended college equally and fairly regardless of how they paid. Any solution that focuses on loan forgiveness will always be unequal in its treatment of those that took a loan out to pay for college, or used savings. Any issue of this magnitude in our society must be equal and non-discriminatory in its treatment of all people.
My proposal is based on the following:
- Over the last 30 years the inflation of consumer goods has been historically low because product quality has been increasing while prices for a constant level of quality has been decreasing
- What comprises a college education (lectures, exams, etc) has been relatively consistent over that same time horizon.
- So the fair value price of college in any year can be determine by the rate of consumer goods inflation. Any excess tuition over that fair value was excess profits that can be refunded to the consumer as restitution.
The process would be simple, fair and equitable to all:
- Pick a baseline year, I propose 1991 because that is 30 years ago and when the inflation curve for college disconnected from consumer goods.
- Take what every university cost at that year.
- Index for CPI inflation, the fair increase in the cost of the goods if they were kept in line.
- Any student will be refunded the difference between the CPI adjusted “fair cost” and the actual cost they paid.
This is simple and fair. Whether you paid for college with debt or savings, all are treated the same. The entity that received the excess revenue, the college, is the one to give back that excess. Innocent third parties, the taxpayer in the form of lender, who did not gain from the excess is not harmed from the correction.
To level the playing field between universities with sizable endowments and those that do not, we will use the model of our tax system. To fund the repayment to students, colleges and universities will contribute in proportion to their endowments using a progressive scale. Those who have the most, will contribute the most.
This proposal treats all people equally, holds the taxpayer harmless, and allows all schools to share the burden of correcting this historical wrong.