As the new school year kicks off, the student loan crisis is back in the spotlight—and the numbers are staggering. Nearly 10 million Americans are now in default on federal student loans, and outstanding federal debt has hit $1.72 trillion, according to the Department of Education. With 42.6 million borrowers carrying an average balance of roughly $40,000, the debate has settled into a familiar standoff: one side tells students to borrow smarter, the other demands blanket cancellation.
Writing in The Federalist, a conservative commentator argues that the way forward lies somewhere between those extremes—and offers a five-part plan aimed at fixing the crisis without making taxpayers foot the bill.
The Scope of the Problem
The piece opens with a stark look at the numbers. College costs have risen about 42 percent faster than inflation, driven by factors including state funding cuts, administrative bloat, easy credit, and what the author calls “amenity wars.” The average federal loan balance has more than doubled since 2007—from about $18,000 to roughly $40,000, or up to $43,000 when private debt is included. At the current interest rate of 6.52 percent, a 10-year repayment plan costs nearly $500 a month.
For the average graduate earning $49,500 a year, that’s about 15 percent of net pay—after a blended 22 percent tax rate—going toward student loans. That’s well within the 36 percent “good” debt-to-income ratio, but it leaves little room for a car payment or a mortgage. One million borrowers owe more than $200,000, and a third of all physicians carry balances in that range. The top 7 percent of borrowers account for a third of all debt.
The article also highlights the near-impossibility of discharging student loans in bankruptcy. The Brunner standard, established in 1987, requires borrowers to prove a “minimal” standard of living, that the hardship will persist for a significant portion of the repayment period, and that they attempted repayment in good faith—a process that begins with a 15-page affidavit. That standard has been narrowed over time, leaving many borrowers trapped.
The author warns that desperation is pushing graduates toward extreme solutions—including those who would “dismantle our system of government”—and argues that debt itself is “an authentic threat to democracy.”
Why Cancellation Isn’t the Answer
The piece is explicit that simply canceling debt is off the table. “You cannot simply ‘cancel’ a debt—someone will be on the hook,” the author writes. Whether it’s banks, taxpayers, or investors, someone absorbs the loss along with the foregone interest. Politicians who push cancellation are “numb to the idea of raiding taxpayers,” but it’s not the right approach, he argues.
Instead, the plan spreads responsibility across all parties involved: borrowers, lenders, colleges, and even banks.
Five Proposals to Fix the Crisis
The Federalist piece offers these five reforms:
1. Cap interest rates at 2 percent. The author calls this “morally repugnant” but necessary to get borrowers back into repayment. A 2 percent cap would make payments more manageable and encourage people to start paying again.
2. Allow bankruptcy discharge—but revoke the degree. The proposal is blunt: if you default on a student loan and have it discharged in bankruptcy, you should lose the associated degree. The author draws analogies to car repossessions and mortgage foreclosures—if you don’t pay for the asset, you don’t get to keep it. In this case, the asset is the degree. The idea even extends to removing all credit hours financed by the discharged debt, forcing borrowers to repeat their education if they want accreditation again.
3. Let lenders seek reimbursement from college endowments. Colleges, the author argues, have “institutionalized borrowing” without teaching students about the long-term obligations. With nearly 160 universities holding endowments over $1 billion and a total of $944 billion in endowment assets, the proposal suggests that colleges should shoulder some of the burden. Lenders could seek reimbursement for forgiven loans, or colleges could buy the loans at a discount and work out repayment themselves.
4. Penalize banks with high default rates. The plan would bar banks that underwrite loans with abnormally high default rates and impose a 10-year clawback on underwriting fees. It would also make default data public. The goal is to force banks to scrutinize borrower credit quality more closely—and to make it “OK to say no to an unqualified borrower.”
5. Tie loan amounts to expected earnings by major. The author proposes guidelines that limit how much debt a degree can support, noting that a women’s studies major earning $50,000 can’t carry the same debt load as a physician earning $300,000. “No banker would approve a $400,000 loan for a Toyota Camry, but you might for a Lamborghini,” the author writes. The same logic should apply to education. The piece also suggests capping borrowing for lower-level courses that could be taken cheaply at community colleges.
Finally, the author adds that colleges should find ways to cut costs—though that suggestion is made in passing, without specific proposals.
A Call for Shared Responsibility
The overarching theme is that any real solution must spread responsibility fairly and mitigate the conditions that created the crisis. The author acknowledges that not all the ideas will be popular, but argues that doing nothing is no longer an option.
“We need to do something to bridge the gap back to the American dream for college grads,” the piece concludes, “and it starts here.”
The Federalist’s proposal arrives as student loan policy remains a hot-button issue on the campaign trail, with progressives pushing for broad forgiveness and conservatives emphasizing personal responsibility and systemic reform. Whether any of these five ideas gain traction in Washington remains to be seen, but the numbers suggest the status quo isn’t working.
Source: thefederalist.com — https://thefederalist.com/2026/08/26/5-ways-the-right-can-start-fixing-the-student-loan-crisis-without-punishing-taxpayers/