There’s a proposal floating out there to pay off everyone’s student debt. There is a corollary proposal to make college free, but that’s another post. No doubt that college is too expensive and that issue needs to be solved, but let’s take a look at some far better solutions than a direct government payout.

Let’s look at some numbers:

• Population of the United States: 329,185,147 (Source)
• Population of the United States age 25 and above: 220.554,048 (Source)
• Number of people in the US over age 25 with a college degree: 73,665,052 (Source)
• Number of people in the US over age 25 without a college degree: 146,888,995 (Source)
• Number of people with outstanding student loans: approximately 44,700,000 (Source)
• Average amount owed on those student loans: $ 29,800 (Student debt – Source) and $ 35,600 (parental loans – Source)

Heady numbers. For comparison:

Source: Nerd Wallet. NOTE: These numbers are per household, while the numbers cited above are per person, explaining the difference.

Bottom line is that while people of all ages owe student debt (yes, including some senior citizens) and some students have debt far in excess of the approximately $ 30,000 dollar debt cited, some also have lower loans. In addition, there are many more people with no student debt than who have student loans, either because they paid off their loans, paid for college as they attended, or never went to college: so that is 175,854,048 people (age 25 and above) with no college debt compared to the 44,700,000 with college debt. By order of magnitude, student loan debt is only slightly less than that owed on car loans, and is dwarfed by mortgage debt.

The most recent polling on using tax dollars slightly favors the government paying off student debt PROVIDED those dollars come from general tax coffers, and oppose paying off the loans with a targeted tax on the wealthy. (Source). This means that people who have never been to college, or have spent years (or decades) paying off their loans are willing to help people with up to $50,000 in student debt provided their household income is below a certain threshold. My guess is that while people polled liked the idea of “the government” paying off the debt, they don’t think about the fact that “the government” spends the income tax dollars paid into the system.

But there are better, and more equitable, ways of handling the debt.

First and foremost, drop the interest rate to 2%. This leaves principal untouched, but lowers the monthly payments. This means a hit to loan servicers, who in the future should consider “ability to repay” before making loans. This has not been a consideration since the early ’90’s when student loan debt became excluded from discharge in bankruptcy. Which is one of the reasons we have such high student debt. It’s not just that college costs too much, but that lenders thought nothing of lending the money. And certainly, for those who need to go to bankruptcy, student loan debt should be reintegrated into those debts which can be discharged.

Second, forgive a certain amount of loans for public service. There are some programs, albeit leaky, that do some of this. Set up parameters for professions that contribute directly: teachers, librarians, police, firefighters, EMTs, nurses, and those doctors and dentists who practice in underserved areas. Let them pay 5% of their gross income for 10 years and forgive the rest.

For everyone else, set parameters of paying 10% of their gross income for 15 years, and then forgive the rest.

This solution is more equitable because while tax dollars are used to absorb some of the cost, people who borrowed the money are still responsible for paying back a certain percentage of it, predicated on income instead of the loan amount. American taxpayers will still cover the amount of loans not paid back during the repayment periods, but the cost is shared.

Moving forward, a “Service to America” program could be considered. Similar to the costs of higher education being paid for those who serve in the Armed Services, this program would allow people to contribute to society and then be rewarded with their college costs being covered at the same level as veterans. Current programs such as AmeriCorp and Habitat for Humanity could be leveraged and expanded. Let’s be honest, there is a lot in the country that needs to get accomplished, and a program like this would encourage participation.

Your thoughts?