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.