Students scammed by college loans … and no good solution
President Biden has announced his intention to partially pay off the student loans for a select group of former students. It is a cynical gesture to win the votes of young Americans for the Democratic Party in the upcoming midterm elections. The President is doing what Democrats do well. They use taxpayer money to bribe special categories of voters.
The irony of the scheme is that taxpayers – including the students who benefited – will suffer from the increased cost of government, inflationary price rises, and a future burden of America’s $30 trillion National Debt. They will also be the taxpayers paying for Biden’s generosity. One way or the other they are getting screwed – but that is not as perceptible as the gift of free money.
Biden appears to be hoping that while he is only doing a partial relief, other young people will like the concept – even if they fail to focus on or understand the downstream backlash. Biden would probably do more, but even he knows that it is a bad policy – and canceling all the debt would put the nation in an immediate surge of inflation and controversy.
By Executive Order, he is offering a $10,000 write-off for those who earn less than $125,000 – and a $20,000 dollar write-off for those who have received Federal Pell Grants to subsidize college costs. Not sure why that makes any sense.
And then there are the hidden write-offs. Biden provided that no student will have to pay more than 5 percent of their net income. That means another loss for the taxpayers – and a modicum of inflationary pressure. The Biden scheme also provided for the cancellation of debt not paid off in 20 years. Couple all that with weak and ineffective collection procedures, and a lot of student debt will never be repaid. In the meantime, he is continuing his suspension of current payments.
There are three elements in the school loan problem – the government, the schools, and the students. The students, however, are the most innocent of the process – the victims.
The primary purpose of the School Loan Program was not to provide better educational opportunities to students who may not otherwise be able to attend college – theoretically enabling them to earn more money during the course of their careers. No. No. No. That was just the advertising.
What took place was $1.75 trillion of taxpayer money being transferred to the left-wing academic community – many with billion-dollar endowment funds. With all that money being dangled by Uncle Sam, the schools responded by increasing tuition beyond inflation – resulting in larger loans and greater debt of the students. The students were merely the economic “mules” to carry the money from the government to the schools.
What Democrats did was to increase the money supply for education without a meaningful increase in opportunities. It did not result in the building of hundreds of new universities. That meant one thing. The cost goes up – and up and up it did. Since the launch of the Student Loan Program, the cost of tuition and other fees have skyrocketed – far beyond the inflationary increases – while the value of the education provided declined.
The government money was a gold mine for academia – and they did not have to expand or improve the quality of education they provided. There was no need to raise tuition. In fact, many of the most prestigious universities could have used a small portion of their endowment funds to subsidize students in need of financial assistance. They could have actually lowered their basic tuition rates.
Endowment funds? Yes. For example, Princeton University is sitting on $37.7 billion. Yale University has $42.9 billion. And Harvard is the granddaddy of them all with $53.2 billion – the largest academic endowment fund in the world. In raising their tuitions, the American academic community was literally bleeding students like Mafia racketeers.
An unsolvable problem?
The problem with the problem is there is no win-win solution. Not even a one-sided win.
The political response is to forgive part or all the debt, but that has significant repercussions. Since not everyone will be getting Biden’s check from Uncle Sam’s bank, those left out may feel … well … left out. And how about all those folks who have dutifully paid off their student loans?
Then there are those who will be applying for student loans in the near future. There is no evidence that there will be any reduction in intuitions. Will Democrats engage in the ridiculous policy of providing student loans to those who cannot afford them because of unnecessarily high tuition rates – and then give them money to pay them off?
To make matters worse, we are finding in this new age of cyber technology the value of the education received – the return on the investment – is very bad. Graduates cannot get those high-paying jobs that were promised in the university brochures. They are stuck with their crushing debt for much longer than they hoped. The investment burden on students increases as the return on the investment decreases. Nice.
There may be one road to sanity, but it is not what the Washington establishment – or academia – is likely to do. We need to upgrade the quality of education while reducing the cost of going to college. That might mean the richest colleges will simply have to cut costs – starting with those exorbitant wages and benefits provided to school officials and senior staff. Perhaps the universities can do with fewer professors if they spend more time teaching in classrooms instead of writing books or staring out the window pondering whatever professors ponder – maybe their next book.
The federal and state governments could use their funding leverage to pressure institutions to reduce tuition – and NOT provide subsidies and grants to offset the reductions. That just reconfigures the same problem.
To make a college education worth something in the marketplace, we should work to educate the students instead of dumbing down the courses with simple feel-good curricula. America’s colleges and universities seem to be responding to the failures of the public-school systems to prepare kids for college, especially those minority urban schools. (Have you noticed how Democrats claim these programs are designed to help disadvantaged minority kids when they have been in charge of the failing schools for generations? Just asking.)
The Student Loan Program is a HUGE problem. It will take a generation to fix if we start working on it today. Instead, Biden is offering to put a bandage on a cancer. We know how that will turn out. (Does the housing crisis of 2008 come to mind?)
So, there ‘tis.
How about if the Federal government puts up half the student loan, and the college puts up the other half? That would provide an incentive to the university to promote degrees that pay well. Or we could create a system whereby the loan money goes into escrow until graduation, and the college forfeits half the money if the student doesn’t graduate.
Another possible solution would be to take a lot of the to-be-hired IRS agents and have them collect up to 25% of the graduates’ income until the loan is paid off. Since jobs requiring degrees pay so much better than those requiring nothing more than high school diplomas, at least according to the colleges, that should not take too long to recover the loan money.
I agree. Basically the Student Loan Program (and problem) has been out of control for years. As an Independent, I do not appreciate what Biden did. As one who paid as I go for my education by working nights and weekends, I do not appreciate what Biden did. As a voter I do not agree with him. Simple solution, restrict funding to community colleges for the first two years minimum for any student applying. Get rid of the transcript evaluation crap that causes students to lose credit hours paid for by those loans. Community schools should be able to dovetail right into year three of a state institution. Like Medicare, set credit hour rates and stick to them. And private institutions such as Yale, Princeton, Harvard, Brown, and many others should be required to match loan funds with endowment funds (that way tuition should not rise to spread costs out to paying students) or if they do not wish to match funds, then they do not qualify for student loans. Lastly, my brother in law is head of the Philosophy Dept. at a private institution. He teaches one course and spend the rest of his time in administrating “adjunct professors” and writing books. Professors should write books on their own time, not on the student nickel. Administration should be done by administrators, not teaching professors. You are correct Larry, this is another scheme to buy votes that will have diminishing returns. For ever student they buy, there are Independents, GOP and Dems that they will lose.
Well I agree with you on the issues in this article, if it just didn’t have the partisan crappola I in it, I would probably agree all the way.
You blame only the Democrats for this, once again being a Republican hack. Giveaways in college started with a G.I. Bill, a democratic law that in my opinion created the economic engine of America in the 50s and 60s. In my own family, we would still be in the train station and working in the mines if it wasn’t for the G.I. Bill. Instead, we have college professors, lawyers, teachers, film producers, of which I am probably the least credentialed of all of them all, just the one who made the most money. Capitalism! You got to love it.
The first college loan program started in 1958, yes it was a Democrat. As was the pell grant changes in 1965, etc. etc. The current loan problem really started in 2006. If this is a 100% democratic problem, all I can say is Republicans really suck at getting things done. All those years, and you did freaking nothing. Multiple presidents, multiple times you on Congress, and you could do shit. No Larry, I don’t think you can blame this one on one party alone.
That said, I do agree with your description on many of the problems. While I find Reagan’s subsidy quote to be naive, I believe the college loan program suffered the same sort of things that welfare did in the 70’s. Time destroys good programs if people don’t pay attention to the outcomes and make modifications accordingly. That’s true for almost any program in the world. Thank God we had the Democrat Clinton to remedy much of that problem by using the best Republican ideas. I think in the case of college, unfortunately, the situation is a little more complex.
First, we know college tuitions have risen much higher than any estimates. Matter fact, of all of the financial estimates I’ve made, this is the one I really blew. Colleges went from double and triple rooms made of cinderblock, to singles with wall-to-wall carpeting and air-conditioning. Can you blame them? Imagine if you will all colleges had cinderblock dorms. One smart guy in one college said: you know if we give them air conditioning, drywall, and wall-to-wall we could probably charge 10% morey and get more students. And when students flocked to the nicer accommodations, other schools followed suit and we were into a college – arms race.
Meanwhile, obviously something is wrong in the loan process when you lend people money they can’t pay back. People who loan money are supposed to avoid that. At the same time, people borrowing money should’ve known better. Nonetheless here we are.
For many years now, I’ve been saying that we need a giant fix in all of this. My answer may be considered revolutionary because at the same time I wonder if after 200 years, should public schools stop at 12th grade? Is that really the kind of public education we need to drive the economy of tomorrow and outcompete everyone else in the world.. Factories are dead, there is much cheaper labor almost everywhere else in the world. Services industry is still good, but in many services, additional education beyond high school as needed. I think we should take public education out to the Associate degree level. Chances are, this would automatically make colleges make major changes in order to compete in that new market. Otherwise every student in the world will take advantage of a two-year degree and then attempt to transfer to a four-year school. Colleges, will be losing two years of education, would be required to make that up by creating better the masters programs and advanced degrees. If you believe education is the driving force of our economy, whether it be the truck driver learning PC skills in order to better navigate logistics, or the rocket scientist, I believe greater education is what will drive a greater economy. I like some of the other suggestions some of the other posters of made here including gigging the college for every student that can’t pay.
So while I think many of the issues here are due to the artifact of time, in other words the loan program has gone on so long, that there are many unanticipated outcomes that need to be resolved. Solutions will be complex and difficult, Biden’s solution here is not a fix. It is just a Band-Aid and as you have noted Larry, a political stunt as well.