June 9, 2014 3:57PM # Student Loan Gifts Don’t Help By [Neal McCluskey](https://www.cato.org/people/neal-mccluskey) --- SHARE ![Media Name: Gift-wraping.jpg](/sites/cato.org/files/styles/pubs_2x/public/download-remote-images/upload.wikimedia.org/148555204152/Gift-wraping.jpg?itok=YV7CAQjC) Today must be student loan day in President Obama’s “year of action” – also “year of midterm elections” – as the President announced he will [expand eligibility](http://www.whitehouse.gov/issues/education/higher-education/making-college-affordable) for student loan repayment capping and forgiveness. In addition, this week the Senate is [set to take up](http://bostonherald.com/news_opinion/us_politics/2014/06/us_sen_warren_eyeing_vote_on_student_loan_bill?) Elizabeth Warren’s (D‑MA) bill to federally refinance student loans at lower interest rates, including truly private loans. Let’s review the folly of such seemingly well-intentioned efforts: - Making student loans cheaper, which includes indicating that Washington will always soften your loan terms if politically possible, mainly encourages students to [demand more stuff](http://www.nber.org/papers/w18745?utm_campaign=ntw&utm_medium=email&utm_source=ntw), and colleges to [charge more](https://www.cato.org/blog/yes-aid-fuels-tuition-inflation). They’re called “perverse incentives.” - In the name of helping them, federal politicians, and many other people, massively oversell higher education to the detriment of students. Perhaps as much as half of people who enter college [don’t](http://nces.ed.gov/programs/digest/d12/tables/dt12_376.asp) [finish](http://nces.ed.gov/programs/digest/d12/tables/dt12_377.asp); [a third of people](http://www.newyorkfed.org/research/current_issues/ci20-1.pdf) with a bachelor’s degree are in jobs not requiring the credential; underemployment [is even worse](http://www.forbes.com/sites/ccap/2011/02/14/educated-and-underemployed/) for graduate-degree holders, and; cheap college has almost certainly fueled [credential](http://nces.ed.gov/NAAL/PDF/2006470.PDF) [inflation](http://www.amazon.com/Academically-Adrift-Limited-Learning-Campuses/dp/0226028569), not major increases in knowledge or skills. - Decreasing what borrowers will repay means taxpayers – who had no choice in whether the loans were made – have to make up the difference. And there is a little matter of being nearly [$18 trillion in debt](http://www.brillig.com/debt_clock/) already. - The [Public Service Loan Forgiveness](https://studentaid.ed.gov/repay-loans/forgiveness-cancellation/charts/public-service) program encourages people to work for not-for-profit entities, especially government. As if government work were a [major sacrifice](http://www.downsizinggovernment.org/overpaid-federal-workers), and things produced or operated for profit such as iPads, grocery stores, bicycles, door knobs, restaurants, books, airplanes, and on and on, didn’t make us better off. Someday, I hope somebody’s “year of action” will finally deal with the crippling reality of federal student aid “help.” But that will only happen if the public gets tired of sweet-sounding “solutions,” especially in years of elections. ##### Related Tags [Education](https://www.cato.org/education), [Center for Educational Freedom](https://www.cato.org/center-educational-freedom), [Department of Education](https://www.cato.org/department-education), [Downsizing Government](https://www.cato.org/downsizing-government) [![Creative Commons License](/build/cato_2020/images/creative-commons.svg)](http://creativecommons.org/licenses/by-nc-sa/4.0/) This work is licensed under a [Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License](https://creativecommons.org/licenses/by-nc-sa/4.0/).