America doesn’t just have a student debt problem—it has an accountability problem. If policymakers want an affordable higher education system, they must stop cycles of debt accumulation and forgiveness and require students to pay back the money they borrowed.
Last week, the Department of Education announced a temporary 1% student loan interest rate reduction for federal student loan borrowers who enroll in autopay (meaning that payments will be automatically deducted from a checking or savings account) by September 30 of this year.
The interest reduction means students will pay less interest, resulting in lower monthly payments and reducing the total interest paid over the life of the loan.
The department has noted that this should help drive up repayment rates and improve the “overall health of the federal student loan portfolio,” since only 40% of borrowers are currently enrolled in autopay, compared to more than 80% prior to the pandemic. Previously, borrowers were eligible for a 0.25% interest rate reduction for enrolling in autopay.
While this is an incremental step to get borrowers on the path to repayment faster, the department’s actions have also reignited an important conversation about the future of student loan policy.
America’s student loan crisis cannot be solved by repeatedly transferring debt from borrowers to taxpayers, as the previous administration attempted multiple times.
With approximately $1.7 trillion in outstanding federal student loan debt, policymakers have spent years debating how much debt should be forgiven rather than how the system itself should be fixed. But broad loan forgiveness only treats the symptom, not the disease. If Washington wants a sustainable student loan system, policymakers must restore accountability to borrowers and colleges. Ultimately, policymakers must work to wind down the federal government’s role in student loan lending.
Students voluntarily take out loans to invest in their education. Like any other loan, those obligations should be repaid. Asking taxpayers—many of whom never attended college themselves—to repeatedly subsidize those decisions is neither equitable nor sustainable.
At the same time, such responsibility cannot stop with borrowers.
For decades, colleges and universities have operated under a system that rewards enrollment growth without adequately considering student outcomes. While tuition increases are not the only drivers of college costs, institutions have still been able to expand programs that leave many students with significant debt and uncertain financial returns.
When college majors fail to result in well-paying jobs—or when they leave students financially worse off than when they started college—taxpayers should question why those institutions continue to receive large sums of federal support.
The Foundation for Research on Equal Opportunity, in a recent report reviewing the return on investment (how much college increases lifetime earnings minus the cost of college) for 53,000 different degree and certificate programs, found that “around a third of federal Pell Grant and student loan funding pays for programs that do not provide students with a return on investment,” and that “nearly half of master’s degree programs leave students financially worse off.”
Students and families also need to approach college decisions differently. Higher education is one of the largest financial investments many Americans will ever make, yet return on investment is often overlooked during the college search process. Students should carefully evaluate graduation rates, future earnings, and career prospects before assuming debt that could follow them for decades.
Students could use the likes of the Education Department’s College Scorecard as well as the Heritage Foundation’s Choosing College With Confidence guide to evaluate their options. Increasingly, families are asking a simple question: Is the degree worth its price?
The federal government also bears responsibility for creating the current system. For years, policymakers encouraged increased borrowing while simultaneously signaling that widespread forgiveness could eventually follow. That approach created uncertainty for borrowers and failed to address the incentives driving debt growth in the first place.
The newly announced interest rate reduction may help transition some borrowers back into repayment, but incentives are not the end goal. A healthy student loan system should not depend on repeated government interventions. It should function because borrowers repay their obligations, institutions are held accountable for outcomes, and students make informed decisions before taking on debt.
