Young People Have Too Much Debt and Not Enough Marketable Skills

Ten years after the financial crisis, banks may be safer and the economy more resilient but many young people are saddled with huge student-loan balances. Too many are stuck in low-paying dead-end jobs, delaying marriage and children, and may never own a home.

The financial crisis brought home two fundamental realities. Low interest rates, flooding financial markets with liquidity and an $831 billion stimulus package would not quickly create high-quality jobs, and many good-paying opportunities for semi-skilled workers and college graduate generalists were permanently lost.

Simply, the economic contraction accelerated many of the structural changes in the broader economy and labor markets that globalization and technological innovations-computerization, automation and artificial intelligence-were imposing.

President Barack Obama responded by encouraging young people to borrow to attend college and graduate school. That took millions off the jobless rolls and aimed to upgrade the quality of the labor force.

That strategy did not work quite as well as expected.

To send most everyone to college, nearly everyone has to receive a college-preparatory high school education. Pressures to "pass them through" resulted in what even The New York Times admits are counterfeit high-school diplomas. Fewer than 40% of secondary school graduates have the math and reading skills to do college-level work.

State governments - pressured by rocketing Medicaid costs, the needs of K-12 education, and flagging tax revenues - slashed support for higher education and raised public college tuition. That enabled private colleges and for-profit schools to do the same and compelled bigger student loans.

Faced with tight budgets and pressures to absorb inadequately qualified applicants, colleges and universities lowered standards.

About 70% of high-school graduates now enroll in two- or four-year programs, student-loan balances now top $1.5 trillion, but many young people don't get the quality education they are promised.

Standardized tests indicate four years of college often adds little to students' analytical abilities and four in 10 college graduates lack the critical thinking skills necessary for entry-level professional work.

These problems are particularly acute but by no means isolated among for-profit colleges. Often, those use exaggerated claims and easy access to student loans to sell the least sophisticated young people-those from economically and ethnically disadvantaged families-expensive and useless programs.

Consequently, more than 40% of young college graduates remain stuck in jobs that don't require a college education, and more than 3.6 million graduates live below the poverty line.

President Donald Trump gets good and bad grades. His emphasis on apprenticeships that pay students, leave them without debt and after a year or two provide most with opportunities that pay better than the $50,000 the average new college graduate earns is admirable. However, his efforts to roll back Obama's crackdown on for-profit colleges are not flattering.

To clean up the overhang of student debt, it's time for some good old-fashioned debt forgiveness. After all, if Presidents George W. Bush and Obama could bail out the banks and General Motors and restructure lots of home mortgages, Trump should be able to rescue young people who got into a mess by doing what their government encouraged them to do-borrow large sums for college.

This could be partially financed by going after the resources of for-profit colleges and mainstream universities that admitted unqualified students and watered down curriculum.

A few bankruptcy auctions for the properties of second-rate schools and tort judgments against endowments of revered institutions would have the same reformative consequences as suing negligent corporations that hawk shoddy products.

Going forward, though, more responsible behavior by all could be encouraged by having colleges and universities directly participate in the financing of student debt-as things now stand, the federal government guarantees a considerable share of outstanding student debt and is the biggest potential loser.

In particular, universities and banks could each be required to contribute half of the capital behind student loans. Colleges and universities could be permitted to float tax-free bonds, similar to industrial-revenue bonds issued by state and local governments, secured by their endowments and properties.

With skin in the game, admission and graduation standards would rise and when endorsing student loans, college financial aid offices would be incentivized to scrutinize the selection and content of majors to ensure the marketability of graduates.