How did we get here? Extreme politics played a role. In the U.S., the Koch Brothers/Grover Norquist tax revolt camp of the Republican party has been waging a state by state war on public university funding for years now: states today provide about $2,000 less in higher education funding per student than before 2008, the lowest rate in 30 years.
Meanwhile, the subprime crisis cut the ability of parents to use home equity loans to pay for their children's education (previously a common practice). This left the bulk of the burden to students, at a time when the unemployment rates for young people of all skill levels were rising.
The trend is not limited to the U.S., of course. In the U.K. and beyond, completely free post-secondary education is a thing of the past. Beleaguered governments are pushing more and more of the responsibility for the things that make a person middle class — education, healthcare and pension — on to individuals.
What are the fixes? For starters, we should look closely at the for-profit sector, where default rates are more than double those at average private colleges. These institutions receive federal subsidies but typically spend a minuscule part of their budgets on instruction; in the U.S., nearly 50 percent goes on marketing to new students. It looks all too much like an educational Ponzi scheme.
Transparency is also key — the student loan market as a whole is hopelessly opaque. In one recent U.S. study, only a quarter of first year college students could predict their own debt load to within 10 percent of the correct amount. Truth in lending documents would help, as would loan counselling paid for by colleges. Sadly, the agency that is leading the fight on both — the CFPB — is under attack from Trump himself.
But the administration will not be able to hide from the student debt bubble. In an eerie echo of the housing crisis, debt is already flowing out of the private sector, and into the public. Before 2007, most student loans were underwritten by banks or other private sector financial institutions. Today, 90 percent of new loans originate with the Department of Education. Socialization of risk continues to be the way America deals with its debt bubbles.
Would that we considered making college free, as Bernie Sanders suggested. Even Mr. Dudley called this "a reasonable conversation". That way we could socialize the benefits of education too.