Student Loan Relief, No. Education Costs Reform, Yes, Please.

January 8, 2022

Tags: college, debt relief, student loan, Tuition
Posted in: Biden, Economy

Joe “Vote Panderer” Biden dropped a little Christmas present in the punchbowl late December. He extended the “pause” on student loan payments until May 1. Biden remains under pressure to cancel the debt. The debt has been a Democratic White Whale forever, and what happens next in May will not be the last of this, especially heading into the midterms later this year.

Despite Democrats’ acid-soaked dreams, student loan forgiveness will accomplish little. But major changes in how education is paid for, and what it costs, can lift America into the 21st century if only we had the guts to do it.

Start with trying to figure out the benefits of student loan forgiveness/debt relief in the Joe Biden and Democratic vision. You come up with a) it’s free money for the recipients and b) it may be worth more votes for Democrats in the younger demographics than it causes them to lose in the older ones (polls show the divide near dead-even, with 46 percent supporting free money.) That’s kind of it. It’s just a pay off for votes.

Tag along arguments are dismissible, stuff like the comparatively small amounts of money on a per-person basis involved with loan forgiveness will help balance economic and/or racial inequality, or that people will spend the money set aside for loans on flat screens and game credits to boast the economy more than spending the money on tuition, and this will all somehow end “privilege.” The Trump administration already deferred student-loan payments because of Covid so canceling payments outright would not lead to much more of a short-term boost in consumer spending (and help drive inflation as well.) And unless forgiveness also includes tax reform, most of the “forgiven” money will suddenly be taxable as income. Forgiveness won’t help America be smarter and more 21st century because the people with the debt already have their degrees.

About here in most articles about student debt things get emotional. So meet Maria, a bright 22-year-old who always dreamt of giving back to her community via a degree in BIPOC Gender Studies. But upon graduation she discovered she owed a gazillion dollars in student loans plus whatever “interest” was, and that Craigslist had no jobs listed for her major! Her job at Target only pays enough to cover her Spotify bill. She says she is a victim of an unfair system.

You’d think that was fiction, yet The Atlantic goes as far as calling student loan debt “immoral,” because in the writer’s words it is “a high debt burden proportional to my income. The burden is so heavy that it has delayed major milestones. My partner and I are soon-to-be newlyweds in our 30s with stable, full-time jobs… Thanks largely to our student-loan debt, we don’t know how we’ll be able to afford kids.” She also has to rent. OMG.

And politically, debt relief may hurt as much as it sort of helps. Many voters would be very uncomfortable with the idea of saying to people who paid their debt off through sacrifice and hard work, ha ha, joke’s on you suckers, if you’d only waited another year it would have been free. Why is college debt more special than debt for medical care, a car you need to have a job, etc. What about people who joined the military for the college money (75 percent of those who enlisted said they did so.) Thanks for your service sucker, and hey sorry about the arm, you could have stayed home and smoked herb and got the same financial deal.

Despite the horror stories about 22-year old kids with six-figure debt, only six percent of student borrowers owe more than $100,000. This small percentage of super-borrowers accounts for about one third of all student loan debt. The government limits federal borrowing by undergrads to $31,000 (for dependent students) and $57,500 (for those no longer dependent on their parents.) Those who owe more than that almost always have borrowed for the discretionary decision to go to graduate school. About 30 percent of undergraduates finish school with no debt, 25 percentage with less than $20,000.

Student loan debt isn’t even the critical part of our economic problems. Some 71 percent of the $14 trillion in ballooning consumer debt is mortgages or home equity loans. Student loan debt is 11 percent, with car loans at nine percent.  Formal income-based repayment plans have existed for some time now for student loans with no equivalent for other debt. Nobody seems concerned about mortgage debt relief, not in 2008 when Obama and Biden bailed out Wall Street over Main Street and not in 2021 when Biden is back, and that’s after the American mortgage crisis almost took down the entire global economy.

Student debt is relatively small on a per person basis, and a fraction of overall debt. This is much more of a political pandering for votes issue than an economic one. But AOC wants you want to do something. So time to reform education costs.

Unlike nearly every other developed country, which offer free or low cost higher education (Germany, Sweden and others are completely free; Korea’s flagship Seoul National University runs about $12,000 a year, around the same as Oxford), in America you need money to go to college. Harvard charges $63,000 a year, a quarter of a million dollars for a degree. Even a state school will charge $22,000 a year. There are only a handful of paths to higher education in America: parents; be poor and smart to qualify for financial aid (there is no financial aid crisis current university endowments can’t lick,) the military, or take on debt.

No matter which path you take, the problem is the price of education. Like many of the old, crumbling things in America built a long time ago in an industrial nation which no longer exists outside of the Springsteen songbook, our paying for education needs a serious fix. Forgiving debt is a Band Aid on a throbbing wet tumor. The next crop of freshman will just start accumulating new debt in the fall. After we forgive all that and do nothing to change how much colleges charge, we’ll just have to do it all again in a few years.

The cost of college increased by more than 25 percent in the last 10 years. In Louisiana tuition doubled since 2008. In Alabama and Arizona, tuition at public colleges and universities is up more than 60 percent. The price continues to rise eight times faster than wages. For example, in 1978 when I attended Ohio State, tuition was $1056 a year. Minimum wage was $2.65, so working year-long only about eight hours a week one could pay tuition. In 2021 tuition is $10,744 and the minimum wage $8.80. It takes about 23 hours a week, a more than half-time job, to pay, though most businesses cap part-time workers at less than 20 hours to avoid triggering Obamacare payments. It is no surprise 40 percent of kids don’t graduate within six years, a vicious cycle of more years, more costs.

That rise in costs was hand-in-hand with 41 states spending less per public university student. Higher education funding cuts on the state level are responsible for 79 percent of tuition increases. State funding cuts are driven by decreasing tax revenues, political decisions to spend money elsewhere, and increases in the number of students going to college as a higher education moves from a prized possession to a near-necessity in the job market.

Any one-timey debt relief will change nothing in the underlying factors driving students into debt. Something has to change the calculus among the minimum wage, tuition costs, and declining state funding.

One solution would be to tie Federal funding to a state’s willingness to lower public tuition to match a reasonable work expectation from a full-time student. So tuition would go up or down based on what someone could earn at minimum wage with say 15 hours of after school work a week. It would be possible once again to work your way through school.

There’s also another way, sadly far beyond the intellectual reach of a once-great nation like the United States. Security is defined by much more than a large military. The United States, still struggling to transition from a soot and steel industrial base to something that can compete in the 21st century, can only do so through education. More smart people is an investment in one of the most critical forms of infrastructure out there – brains.

A single F-35 fighter plane costs $178 million. Dropping just one plane from inventory generates 3,358 years of college money at today’s average costs. We could pass on buying a handful of the planes and still defend ourselves well. Give the money saved to states directly for education. Or use the money to create some type of civilian service alongside the military; there’s got to be something that needs doing enough that the government will pay for college other than humping a ruck across the next Afghanistan.

For a nation that can clearly afford to pay for a broader base of accessible higher education if it wants to, it seems very wrong to simply leave the nation’s future to a Darwinian system of financial survival overlaid with a Dickensian debt plan. But new priorities and serious reforms, not free money, are the solution.

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