Op-Ed: Imagine if Auto Loans Worked Like Student Loans
Lending money is not, as they say, rocket science.
According to the Federal Reserve Bank of St. Louis, in the last quarter of 2021, of all outstanding business loans from all commercial banks, 1.08 percent were delinquent. Per the Federal Reserve Bank of New York, as of the second quarter of 2021, a little over 2 percent of the $1.4 trillion outstanding in auto loans were delinquent.
Yet in the student loan market, totaling around $1.6 trillion — not that different from the total size of the auto loan market — an average of 15 percent are in default at any given time, according to the Education Data Initiative.
It should be clear what the problem is.
Auto lenders make sure that those to whom they lend can and will pay back the loan. They are careful because if the borrower defaults, the lender loses.
But if, tomorrow, President Joe Biden or Sens. Elizabeth Warren or Bernie Sanders decide that it is not fair that there are Americans without new cars and manage to get government guarantees for auto loans, is there any doubt that there would be a dramatic rise in defaults on car loans?
Those lending wouldn’t care to whom they lend because they wouldn’t take the loss on a default — you and I would, as we will if Biden and his party have their way and wipe out student loans.
Of course, “wipe out” is not the right terminology. Debts don’t get wiped out. They just get transferred to someone else. In the case of government guarantees, that someone else is taxpayers.
The concept of student loans backed by the government is another child of the allegedly compassionate 1960s. Doesn’t it make sense to help the less fortunate obtain funds to pay for college?
But as many theologians and philosophers have noted, the greatest charitable act is to help another individual take control of his own life. Teaching personal responsibility is the most valuable gift that one can provide another.
Our American compassion, our moral compass, has gone awry.
A child growing up in America today looks around and finds himself or herself in a nation where debt is larger than the entire economy, and still growing.
But just as inflation shows that the cost of fiscal irresponsibility cannot be hidden, so the cost of teaching our youth that personal responsibility is irrelevant cannot be hidden. It manifests in the destructive behavior we see now.
The Wall Street Journal reported that one student loan adviser told them, “I’m seeing them say, ‘I’m going to take out more loans now and go buy GameStop stock with it because it’s going to get forgiven anyway.'”
Of course, the universities love this. What business wouldn’t think the government subsidizing the purchase of its product is a great idea?
According to the American Enterprise Institute, from January 2000 to December 2021, college tuition costs increased by 175 percent and college textbook costs increased by 150 percent. Over the same period, the consumer price index for all items increased 65.5 percent.
Per the Education Data Initiative, the highest default rate — 26.33 percent — is among arts and humanities majors attending non-selective schools. Can anyone really think such loans make sense?
We need to help our youth who want education to get it. But it must be done prudently.
Teaching our youth that they don’t need to pay back debts is not a good start.
Misguided efforts by Biden and his party to cancel obligations on student loans should be vigorously opposed.
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