Student loan bailout foreshadows financial crisis: what should Christians do about it?

Last week the Biden administration agreed to expunge $6 billion in student debt for 200,000 students who claimed they were defrauded by the now defunct for-profit Corinthian Colleges. This is in addition to $25 billion of student debt forgiveness for 1.3 million borrowers they granted in recent months. In an effort to expedite the process, the Biden administration has erased the outstanding debt for all students who attended the Corinthian Colleges from 1996-2014, without taking the time to look at students’ claims on a case-by-case basis to determine if harm had occurred.

This loan forgiveness approach amounts to the use of federal funds to compensate for damages caused by bankrupt education corporations. In doing so, the Biden administration has set an enormous legal precedent that could reach well beyond the billions they've spent so far. The potential this issue has to push the U.S. into the next financial crises demands answers to the following questions:

  1. Is student loan forgiveness fair?
  2. How much could it cost?
  3. What should Christians do about student debt?

Is student loan forgiveness fair?

As important as this question is, it is preceded by an equally important question: “Is loaning an 18-year-old a large sum of money fair?” For decades, the biggest unsung ritual that accompanies high school commencement is filling out the Free Application for Federal Student Aid (FAFSA) form. Suddenly, every 18-year-old in the country is learning how much they could borrow for college, without ever being counselled on how much they should borrow. Talk about a train wreck waiting to happen! Students who couldn’t even vote, sign a contract, or be held accountable for a felony the year before are now being offered enormous sums of money, with no track record or proof that they're ready to handle it.

That said, when you take out a loan, you promise to pay it back. You are spending somebody else’s money, not your own. Clearly it is unfair to expect someone else to pay your debts. And it's difficult to claim ignorance when you've successfully completed high school and have been admitted to college. Even less convincing is the argument that your debt should be paid by those statistically more financially disadvantaged than you. Should those who opted to forego college and directly enter the workforce be forced to pay for your oversight? Especially when you were allowed to choose your field of study?

How much would it cost to pay off student debt?

As of the 3rd quarter of 2021 (the most recently available data), U.S. student debt has reached $1.6 trillion (with 43 million borrowers having some federal student loan debt), second only to mortgage debt ($10.4 trillion), and ahead of auto loans ($1.4 trillion) and credit card debt ($800 billion). To put this in perspective (because big numbers—like millions, billions, and trillions—tend to confuse people), paying off all student debt would add $10,811 onto each of the 148 million tax returns filed in 2021, with the price tag equal to the total amount of individual income tax collected in 2019 (the most recent IRS data available). Shifting the outstanding debts of one group of people—those with outstanding student loans—who had opportunity to benefit from the use of those funds, to those who did not, would not only be unfair, but cause far-reaching harm. 

What should Christians do about student debt?  

Do your homework. College education is a product. When you choose to go to college, you are buying something. It is much like buying a house or a car, and often times even more expensive. And just as everybody knows that not all house or cars are created equal, the same is true about a college education. So stop relying on the studies that show that college graduates have higher earning potential than those with lesser educations. The generic studies you read are true, but only to the extent that they are based on broad statistics. That is, you are statistically more likely to earn more with a college degree than without one. But there is no guarantee that this will prove true for you. Moreover, not all college degrees, nor areas of study, offer the same opportunities. I have been a Bible major, a music major, and an accounting major, and while my musician friends like to say I sold out going into accounting, I ruefully respond, “I found I wasn’t that entertaining, so I decided to be useful.”

Also keep in mind that while the value of your degree may be questionable, there is no such uncertainty about the amount you owe. So before you go into debt chasing a degree, ask yourself: is there a demand for this specific degree? Do you want a career in this discipline? Are you good at it?

If college education is a product, that means somebody is selling you something. And you will only be satisfied with that product if it accomplishes what you want it to. So don’t rely solely on information from a specific college on how good they say they are in your chosen field. Check externally recognized sources, like the college reports from U.S. News & World Report and The Princeton’s Review of Best Colleges.

My favorite resource is the College Scorecard, from the U.S. Department of Education, which allows you to personally compare between and within colleges and majors based on federal government data, including salaries by college and discipline.

You should also become generally financially literate.The FAFSA tells you how much you can borrow, but you should not automatically borrow the most you can. Do not go into debt without an understanding of what that debt can do to your future. Here’s my general rule of thumb for all borrowing. Never borrow for something that doesn’t go up in value. Will your college degree really increase your earnings potential enough to pay back the debt you took out to earn the degree?

As an example, I used the College Scorecard website to evaluate Azusa Pacific University and the L.P. and Timothy Leung School of Accounting, where I teach. I found that Azusa Pacific University has an average salary for 4-year undergraduate degrees of $57,796 (the national average is $47,891). A closer look shows those results are driven by a strong Nursing major ($97,162), followed by the Accounting BA ($68,256). Is this worth an average annual cost (e.g., tuition plus living expenses) of $30,744? It depends on what economists call opportunity cost. What is the next best thing you’d do with your life?

If you study these things and decide to borrow money to pay for college, prove yourself trustworthy by paying your debt. The Bible tells us to “Let no debt remain outstanding, except the continuing debt to love one another.” (Romans 13:8a) During the Great Recession, there was a lot of talk about how predatory lenders encouraged people to take out loans for homes well beyond their means. And because of complex instruments like mortgage-backed securities affording the opportunity to lend other people’s money, banks and mortgage brokers sometimes neglected their due diligence in pursuit of a quick commission, causing harm to many uninformed borrowers.

As true as this might have been—shrewd people preying on the financially vulnerable—there were many others who were not harmed by lenders, but rather piggy-backed on a socially acceptable excuse to pin their personal losses on the bankers. So when people walked away from their mortgages simply because their home prices declined, their personal dishonesty greatly exacerbated the financial meltdown. Bottom line? As Christians, we serve God, not money. And we should be honest in all of our dealings, regardless of what the world says is acceptable. Pay your debts.

“In the same way, let your light shine before others, that they may see your good deeds and glorify your Father in heaven.” (Matthew 5:16)

John Thornton is the L.P. and Bobbi Leung Chair of Accounting Ethics at Azusa Pacific University, and author of Jesus’ Terrible Financial Advice: Flipping the Tables on Peace, Prosperity, and the Pursuit of Happiness.

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