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Student Loans. A Bad Solution To A Bad Policy

Student Loans. A Bad Solution To A Bad Policy

In the Democrats’ evergreen policy of trying to buy votes with taxpayer money, we now have the student loan issue.  Put simply, President Biden and his big-spending colleagues in Congress want to forgive up to $6.2 billion dollars in student loans.  The various proposals run from partial forgiveness for those currently holding debt to complete forgiveness of all debt.

Democrats also have a plan to avoid the problem of student debt in the future. Free college.  Oooops!  Did I say free?  Actually, the plan is for the taxpayer to pay the colleges.  That is even a worse idea than the student loan program.

To understand the situation in which we find ourselves – or at least those of us with student loans – one needs to know how we got here.

We know that there are hundreds of thousands of degree-bearing folks who are straddled with significant debt.  For many, it has taken the place of mortgages as a major personal or family obligation.  In fact, it is preventing a lot of people from being able to purchase a home.  Many are in the so-called “credit trap” barely able to keep up with the interest on the loans.

This has happened because the entire loan program had a fatal flaw.  It was based on the false notion that government could enable folks to borrow more than they could afford without ramifications.  It created an economic bubble much like the government-created housing bubble that led to the 2008 recession.

The entire plan ignored the reality that when there are third-party payers, the costs skyrocket.  That is what happened to the student loans.  They were not an economic benefit to the students, but to the educational institutions, they attended.  The students were merely the vehicle to transfer money from Uncle Sam to the University of Whatever.

This resulted in American colleges and universities gathering more and more of this “free money” by raising tuition.  In fact, the cost of education rose far faster than inflation.  The Student Loan Program was a gold mine for the schools.  Essentially, it made the return on the investment in education worth less than the cost – as we see today in so many cases.

Very few students would have – or could have – come up with the money to pay for the exorbitant tuition – neither from personal family resources nor conventional loans.  The universities would have had to keep their tuition and other costs down to meet the real market.  Again, remember the housing bubble.

Now that the Democrats have created this economic crisis for so many younger Americans, what are they proposing to do about it?

Put simply, they want to write off their mistake by simply cancelling all or a portion of the debt they created.  How ironic — seeking political advantage by putting the past burden on the taxpayer disguised as a benefit. 

A lot of Americans not only do not like the Democrats plan – it enrages them.  First are those who have already paid off their student loans (like me).

(As I recall, my loan was less than $4000 for four years at Knox College – a college with a comparatively high tuition.  Since I was a poor kid, the rest was made up in scholarships and a fraction from my parents and summer jobs.  Ironically, I have recently been getting spam calls to help me pay off my student loan – which was paid off almost 50 years ago.   But I digress.)

In addition to those who have paid off their debt, what about those just entering college next year – and the years after?  The tuitions have not gone down.  The loan program is still pumping out money to feed the colleges and universities. In other words, if the Democrats simply puncture today’s bubble, they will be creating a future one. 

There is one approach that is not even being considered by Democrats – creating policies, pressures and incentives to drive the tuition costs down.  If I had the proverbial magic wand, that is where I would use it.

I would establish a formula that would create a target “fair tuition” number.  It would vary from institution to institution based on hard costs – including administrative costs and faculty compensation to faculty (the other BIG beneficiary of the Student Loan Program).  I would then reduce federal funding to those institutions – and grants to faculty — that exceed the standard.  I would also consider banning the receipt of student loan money from schools that do not meet the standard. 

We could also develop a plan through which the specific schools assume a portion of the debt that their students incurred – and let them decide to write it off, or not.

As is the case in so many of the Democrats’ spending plans, the student loan write-off has an inflationary side-effect.  Just what we do not need at this time.

Unfortunately, there is no painless solution to the student loan crisis that the Democrats have created with their typical spend … spend … spend policies.  Uncle Sam cannot be the economic resource for everybody all the time.  Some challenges must be addressed at the state, local and personal levels.  WE need to empower the free market, not usurp it.  But Democrats do not believe in the basic concept of our ingenious federal system – and the Student Loan Program is just another sad example.

So. there ’tis.

About The Author

Larry Horist

So,there‘tis… The opinions, perspectives and analyses of Larry Horist Larry Horist is a businessman, conservative writer and political strategist with an extensive background in economics and public policy. Clients of his consulting firm have included such conservative icons as Steve Forbes and Milton Friedman. He has served as a consultant to the Nixon White House and travelled the country as a spokesman for President Reagan’s economic reforms. He has testified as an expert witness before numerous legislative bodies, including the U. S. Congress. Horist has lectured and taught courses at numerous colleges and universities, including Harvard, Northwestern, DePaul universities, Hope College and his alma mater, Knox College. He has been a guest on hundreds of public affairs talk shows, and hosted his own program, “Chicago In Sight,” on WIND radio. Horist was a one-time candidate for mayor of Chicago and served as Executive Director of the City Club of Chicago, where he led a successful two-year campaign to save the historic Chicago Theatre from the wrecking ball. An award-winning debater, his insightful and sometimes controversial commentaries appear frequently on the editorial pages of newspapers across the nation. He is praised by readers for his style, substance and sense of humor. According to one reader, Horist is the “new Charles Krauthammer.” He is actively semi-retired in Boca Raton, Florida where he devotes his time to writing. So, there ‘tis is Horist’s signature sign off.

13 Comments

  1. Rat Wrangler

    Over the years, there have been many studies showing the differences in incomes between those with, and those without, college degrees. Pew Research claims that the average degreed person makes $18,000 more annually than an undegreed person in a similar job. Other studies have shown that having a degree means you will make a million dollars more in your career than if you didn’t have it. With all this extra money, why is it so many college graduates cannot pay off their own loans? Is it that a lot of the jobs that require degrees don’t pay as much more as the studies claim? Is it that the college students learned to party hard and carry that past graduation? Perhaps our government could fix the problem by requiring two different minimum wages; one for jobs that do not require a degree, and another 50% higher for jobs that do require degrees. Once this is implemented, businesses will probably revert to the pre-1980s model, where 60% of decent jobs in the US did not require degrees.

  2. John Hewett

    Larry,
    I agree with 90% of your editorial. I have said for years that the student loan program has been the biggest con on American society since the Social Security Ponzi scheme was enacted. Convincing people that a college degree was necessary to get ahead in the world led to unqualified and unknowledgeable teenagers taking loans and majoring in subjects that had no financial rainbow and pot of gold at its end. Because universities are known bastions of liberal thinking and the liberal mantra when it comes to paying for things is making people/businesses pay their fair share. Well, I propose universities pay their fair share. They can either use their alumni base and/or their endowments to pay off the student loans of people who attended their university. The alumni who have been totally indoctrinated by their alma mater should be the first ones to step up and help pay off student loan debt for their fellow alumni. In order to motivate universities to take this approach, federal and state governments should withhold all financial support until the university enacts a student loan repayment program and tie the amount of taxpayer money the university receives directly to the amount of student debt the university has paid off.

  3. Wayne Mayer

    I enjoyed reading the article. Sorry but the taxpayer should not be held responsible for student loans. I do like the suggestion that the plan put forth from MR. Horist should be considered!!! Student loan debt should not be canceled by the government. I do like the idea that Mr. Horist put forth about the colleges Hold them responsible for increasing tuition to a much higher level then necessary. Establishing a fair tuition for each college or university. If the institutions don’t establish such a formula then student loans should not be permitted for the college or University! MR. Horists plan is so much better then what is being purposed by the far left democRATS to just have the taxpayer made responsible.

  4. frank stetson

    You see, Larry, on this one we more or less agree. We agree there is a problem and that problem is loaning people money who can’t pay it back. The terrible part is we all marketed to them, young folks who know little which is why they are in school, sold them, and now we can’t get our money back and they are living a miserable life under massive debt.

    Meanwhile, the program becomes institutionalize and systemic cost/price increases become the unintended outcome. Larry, I am pretty good on finance, but the one major fuck-up I did was in estimating college tuition increases over the years. I was way off. Like order of magnitude off. During that time, I watched doubles turn into singles, community areas turn into private kitchens and eating areas, cinderblock turn into drywall done in pastel colors….I went to school in an army barrack, my kids went to Club Med.

    When I was in a regulated industry, we could make 7% on our costs. So, what happened? Our costs went up. “don’t send Manny to fix that, send Manny, Moe, and Jack — the Pep Boys cost three times as much, more profit!!! Unintended consequences that built a national network but became cost gluttons over time. Same thing with the colleges and no loan program will ever fix that. It was a cause of it.

    I don’t mind helping these folks out, but let’s give a helping hand, not a hand out. They took the loan, let them pay the piper. There is no unfair here, just stupid. They should have known the math, what they paid, what they would be paid, and could that allow them to pay it off. So, forgo some interest, delay some payments, reduce the payment, extend the time, interest free, but do not just rescind it all on my back. My parents paid in full for my college, I paid for my kids. That should be the standard. Just pay what you took.

    I agree, the rest is just buying votes, no different than Trump’s tax cut, it’s bad finance all around.

    Bottom line: first, tighten up the loan program to end this problem going forward. That ought to create some pressures to reduce price as schools compete for a smaller pool of dollars. Second, don’t forgive current debtors, but create some programs to reduce the pressure and get them out from being under. Don’t save them, but lend a hand helping them pay off their debt. Have a heart, they were younger and stupider when they did this.

    Meanwhile: “Democrats also have a plan to avoid the problem of student debt in the future. Free college. Oooops! Did I say free? Actually, the plan is for the taxpayer to pay the colleges. That is even a worse idea than the student loan program.” Here I disagree. Larry, it’s 2022, America needs education to be competitive. It is the key to our future, our kids future. To think the level of education designed 100 years ago is sufficient today might be a bit naïve. I think stretching pubic education through the AA degree, or equivalent technical degree, would be a great used of taxpayer dollars in defense of a better and stronger America. It’s hard to even operate a cash register nowadays without something beyond a High School degree. And two dozen other developed countries agree: https://www.theedadvocate.org/which-countries-provide-free-education-at-a-university-level/

    A secondary benefit of this is that it really puts price pressure on four year schools to compete with losing two years of revenues. Now they not only can fight for public dollars, but they have to fight for folks for the final two years, or perhaps a new program of something different. Between that an online college education, perhaps this competition will start bringing prices more inline with reality.

    And that’s my real bottom line: we need to do things that force higher education to be more price competitive as an industry. It’s best if government just sets the conditions for that, especially if it’s in the public interest like the defense of America.

    • Fonnis murdock

      Don’t borrow if you can’t repay. Just like kids. Don’t breed them if you can’t feed them

  5. G Miller

    I am offended that hard work and fiscal responsibility are being attacked on every turn. I was coached by my parents and further coached my kids on the true nature finance and money in general. My daughter had the highest student debt among us but she knew what she was getting into and at 35, actually paid it off during the pandemic. The Federal relief programs have some merit only because if the government pulled the rug out from under the ability to earn wages for two years, that could be reason for some incremental help. I own a business in an industry (business meeting decor) that was completely shut down by the lock downs and only just resurfaced. The PPP and some unemployment $ helped me get through. Beyond that, paying off debt shifts the burden to the tax payer and gives a false impression that personal financial responsibility (and personal integrity) can be avoided. In the big picture, you are right in that it fosters a dependency on the government and like so many other current programs, destroys individual integrity that created our extraordinary way of life in the first place.

  6. Tom

    Larry, Curly (Frank) agrees with you and so do I. Now lets hear from Moe (Ben). What is not mentioned is that the total student loan debt to the Federal government is almost $2T. If Democrats can cancel student loan debt, then it no longer appears as national debt and the Democrats will able to publish 1) We reduced the debt and did not add to it, 2) We can now afford the other wish list we did not get through before due to Joe Manchin and Kirsten Sinema. I believe this is their ultimate goal. They put the students in crisis, and now they will use the crisis. I went into the navy during the Vietnam War Era and got education benefits once I was out; which I used for my 2 year degree and then got hired by a good company with an education policy which I used for my BS. Then later in life I paid for my masters degree cash. There are still ways of going to college and getting help combined with employment. Military is a great example. Navy pays for your dentist degree, be a dentist in the navy for 8 years and then you are pretty free to do what you like. We should get all of these indebt students jobs, pay them 10% under going rate. And each year we use that 10% which the tax payer saved toward credit for their loan debt, and just deduct it from their pay so they do not have a choice of whether to pay the debt or not. Students that show they can pay the debt monthly could opt out of such a program. Such federal jobs could be civilian and military at the local, state, and federal levels.

  7. frank stetson

    Eh, like 1.75T at the end of 2021.

    FYI: If Democrats can cancel student loan debt, then it no longer appears as national debt and the Democrats will able to publish” You do realize that student debt is a debt owed by the student ==== not the government. The government “owns” an asset, in this case an asset that will be about to be written off the books and then become a loss…. Here’s the weird part, if you forgive a government-owned loan, the government actually runs a deficit (because it didn’t get the profit it said it would), but lowers it’s debt because it writes the liability off the books. Or something like that. But loss is loss and ultimately you pay the piper if you lose and have to give something else up to cover.

    Chances are it’s even more confusing financially because often the government does not own the loan, either a quasi-government agency does or a third-party financial institution like Chase. But the government backs all loans so if a bank owns it, calls it in, and the student ca’t pay, the government ponies up —- that’s not even a good business model even if everyone pays. The financial puts n takes get more confused as these financial houses bundle, securitize, and resell the government-backed loans as to where the money goes or comes from and who is profiting from what. IOW — there are all sorts of stakeholders attached to this cash cow.

    I agree Dems would call this a huge win for humanity, but pretty sure no one will be able to follow the money completely. Not to worry, won’t happen, maybe a weak-tea compromise like slowing the payments, fines, extending times, etc.

    The only reason I think we should make some allowance is that, in many cases, it really feels like we sold these kids, and I know they are young adults, with parents, but we sold them something that there was a very high probability that they could not pay back easily in a timely fashion. So, let’s not let them off the hook, but we could make it easier and relieve some of the time pressures.

    • Ben

      Borrow money, pay it back

      • Ben

        Or go bankrupt and have taxpayers bail you out.

        Worked for Don.

        Twice.

        • Ben

          He used the laws that were on the books

          • Ben

            So can they.

            You gotta point here? I mean the dumbshit didn’t pay his loans. He found a way not to.

  8. Harold branch

    The lender should garnish the wages if they don’t pay. I’m tired of people always looking for freebies and gimmee gimmee. They learned that from the democrats