New Student Loan Rules Are a Step Forward, But the Real Fix Is Removing Government From the Equation

A Step in the Right Direction, But Not the Cure

The Trump administration has finalized new student loan rules that place accountability on colleges and universities. Programs that graduate students without meaningful earnings gains will lose access to federal student loan dollars. I’ll say it plainly: I think this is great. It’s a move toward sanity in a system that has been completely detached from economic reality for a long time.

But let’s be honest with each other. This is a bandage on a broken leg.

The core problem is not which programs qualify for loans. The core problem is that the federal government is involved in student lending at all.

Why Government Subsidies Always Make Prices Go Up

I have said this for years and I will keep saying it. Anytime the government subsidizes anything, the price of that thing goes up. It does not matter whether we are talking about healthcare, housing, or higher education. This is not an opinion. It is basic economics.

College tuition has exploded over the past several decades precisely because schools know the money will always show up. When you remove the consumer’s direct relationship with the price of a product, the seller has no incentive to keep costs reasonable. Colleges and universities have been pricing their product based on what the government will fund, not what families can actually afford.

Eliminate the federal student loan program and watch what happens to tuition. Prices come down. They have to. Because suddenly the product has to compete in an actual market.

What a Private Market Student Loan Would Actually Look Like

I am not anti-lending. I believe in free markets. If a private bank wants to make a student loan, let them do it. But here is the critical difference from today’s system:

• The loan must be dischargeable in bankruptcy, just like virtually every other consumer debt
• The lender takes on real risk, which means they will price that risk accordingly
• Interest rates on an unsecured loan to an 18-year-old with no income history and an uncertain career path would be significantly higher
• Very few students would borrow six figures at 20 percent interest to pursue a degree with no clear earning pathway

That is not a cruel outcome. That is the market doing exactly what it is supposed to do. Sending price signals. Allocating resources efficiently. Protecting young people from financial decisions they are not equipped to evaluate at 18 years old.

The Half-Million Dollar Student Loan Horror Story

To understand just how broken this system is, consider the story of a couple in their sixties who are still paying off student loan debt that has ballooned to $500,000. They cannot retire. They may never retire. One of them is an engineer.

This is the real-world outcome of a system built on the premise that the federal government should backstop unlimited borrowing for higher education with no market discipline attached. Loans that cannot be discharged in bankruptcy gave lenders zero incentive to screen borrowers carefully. Schools had no reason to keep costs down. And students, many of them teenagers, were handed life-altering debt without any meaningful counseling about the long-term consequences.

What Needs to Happen Next

• Earnings-based eligibility requirements for federal loan access, which is what the new rules establish, are a reasonable first step
• But Congress needs to have a serious conversation about winding down federal involvement in student lending entirely
• Private lenders should be permitted to make student loans, but those loans must carry bankruptcy discharge rights like any other consumer debt
• Colleges must be forced to compete on price in a real market

The new rules may face political reversal the moment a different administration takes office. That is a legitimate concern. Any policy built on executive action rather than structural reform is temporary by definition.

The only permanent fix is getting the federal government out of the student loan business and letting the market price education honestly. Until that happens, the debt crisis will continue, tuition will keep climbing, and more people will spend their retirement years paying for a degree they got forty years ago.