At a recent town hall meeting in Milwaukee, President Joe bidenJoe Biden Texas Democrats stage walkout to block passage of vast election review program DOJ adds four defendants to Oath Keepers conspiracy case Biden recalls late son Beau in Memorial Day remarks MORE reiterated his Support for $ 10,000 in student debt relief, while also being pressured by members of his own party to go further and write off up to $ 50,000 per person. To use a medical analogy, is treating the symptom the right approach or does it make more sense to address the causes of the disease?
In new search For the Mercatus Center at George Mason University, we’re finding out a lot about a contributing cause: the poorly understood relationship between professional licenses and student loans. Reform of licensing laws could reduce the need for more extreme measures that would ensure the well-being of the wealthy and endanger the foundations of the student loan system.
Workers with a professional license are about 10 percentage points more likely to have borrowed for their college education than those without. They are also almost 6 percentage points more likely to have unpaid student debt. Among student loan borrowers, licensees on average borrow about $ 12,000 (or 38.5%) more and have student loan balances of about $ 7,000 (or 42.5%) more higher than unlicensed. Most of the difference can be attributed to borrowing for compulsory graduate programs.
The relationship between licenses and student loans has been around for several decades and appears to have developed over time. Our results suggest that licensing reform may help alleviate student borrowing, in addition to alleviating some other well-documented inefficiencies in the labor market.
Professional licenses have become one of the most important institutions in the labor market. The fraction of dismissed workers increases from about 5 percent in the 1950s to about a quarter in the 2000s. Nowadays, it covers many low to mid-paid jobs, such as cosmetology, social work, and teaching, as well as high-paying jobs like medicine and law.
Licensing regulations usually set minimum educational requirements, which are the keystone that binds them to higher education. In addition, the educational requirements specified by licensing laws have gradually increased over time. For example, the requirement of physiotherapists amended from a bachelor’s degree in 1990 to a doctorate in 2015 in most states. The minimum number of college credit hours for certified public accountants increases from 120 to 150 hours at the national level.
While this gradual increase in licensing requirements may seem reasonable at first glance, in these and similar cases, credible studies cast doubt on whether patients and clients actually benefit.
Outside of our study, there are good reasons to reconsider aggressive student loan forgiveness.
It is true that the outstanding student debt exceeds $ 1.5 trillionand that some people do not repay their student loans. But it is also true that borrowers are on average more educated and earn more than non-borrowers with or without college education. Following the college pay bonusFinancing college education with student loans has generally been a good investment.
A recent Brookings Institution Study shows that households in the richest 40% income bracket owe 58% of outstanding education debt and make 73% of monthly education debt payments. In contrast, households with the bottom 40% of income owe only 19% of outstanding debt and make only 10% of payments. Therefore, the student loan forgiveness proposal is a regressive proposition that benefits the better-off far more than the needy.
It is also worth noting the problematic incentives created by these proposals. There are fewer reasons to pay off a loan that you expect to be forgiven. Public student loan programs aim to address failures in private lending markets. Borrowing can be difficult for young people without collateral such as a house. But without this borrower guarantee, it is even more important that programs are self-financing and sustainable, and that borrowers are accountable.
As shown on the another study by one of us, borrowers are sensitive to a change in the incentive to repay student loans. One-time cancellation of student debt can have a long-term effect on the sustainability of public student loan programs.
Taken together, these facts mean that policymakers should consider addressing the root causes of the student debt problem, rather than solving it through a temporary student loan cancellation. Licensing reform is one way to help alleviate the increase in debt. Not only could this remove all unnecessary higher education requirements for licensed professions, but it has the added benefit of opening up more quality jobs to more Americans who need help.
Kihwan Bae is a researcher and Edward Timmons is director of the Knee center for the study of labor regulation at Saint Francis University in Loretto, Pennsylvania. They are the authors of the new Mercatus Center at George Mason University study, “On Borrowing Time: How Professional Licenses Affect Student Loan Debt. “