(not) Free College
A Simple, Cheap Solution
As of November 2021, outstanding student loan debt was $1.6 trillion and approximately 90% of this debt is held by the U.S. government. Additionally, student loan debt is growing six times faster than the overall economy. The relevant statistics, however, relate to borrowers’ ability to repay. Leading up to the Covid-19 pandemic, approximately 11% of student loans were at least 90+ days delinquent, up from 6% in 2003 (see below). For comparison, credit card delinquency rates were approximately 8% at the same time. During the financial crisis credit card delinquency rates hit an all-time high of 14%.
Notice the sharp “decline” in student loan delinquency rates starting in 2020. The federal government CARES Act included student loan forbearances to borrowers during the Covid-19 pandemic. Forbearances are not reported to credit agencies. Student loan delinquency rates “declined,” but the ability to repay has not changed. When (or if) the forbearance is removed, delinquency rates will normalize 90 days after the change in policy. It’s more likely that rates will rise above pre-pandemic levels. There is much talk about student loan relief or complete loan forgiveness. There’s no point in making payments if you believe the debt will be erased. Also, borrowers (I’m one) will have gotten used to (not) free college. Personal budgets and spending habits will have certainly changed. Introducing a large monthly payment that had been zeroed-out for 2+ years will cause repayment problems.
Most people agree that there is a problem with the cost of higher education. But liberals don’t even correctly identify the problem. Liberals constantly reference the $1.6 trillion debt figure and imply that’s the problem. That’s like being told a homeowner has a $100 thousand mortgage and then asked if that amount is too high. There isn’t enough information to answer the question. The value of the house and the borrower’s debt-to-income ratio and credit score also need to be known. The student debt problem is that degrees cost more than they are worth, resulting in repayment problems. Democrats believe the solution to the problem is to call college “free” and pass the cost on to taxpayers. Having the taxpayer foot the bill is treating the symptom, not the cause.
What is causing the cost/worth imbalance? There are a few theories. One is that direct subsidies from federal and state governments contribute to price inflation. (Not) free money makes it easier for the schools to be inefficient and wasteful. Another is that the federal student loan program essentially rubber stamps any loan based only on admission and doesn’t evaluate the degree’s cost/worth proposition. The Department of Education will sanction schools with default rates over 30% for three years or 40% for one year, but those sanction hurdle rates are astronomical. In other words, schools know that the federal government, with few exceptions, will not hold them responsible for their imbalanced cost/worth ratios, the primary driver of long-term default rates (economic downturns will increase default rates, but those rates normalize when the economy improves).
There are two other causes that don’t get much attention. First, professor compensation has little to do with the professor’s ability to teach. Professors, particularly the tenured ones, are also paid based on their national prominence, which comes from published research, speaking engagements and media appearances. None of which benefit the student or have anything to do with the professor’s ability to teach. A student doesn’t need to learn from the person who produces the research or writes the textbook; teachers are what students need, not “professors.” Second, a four-year undergraduate degree consists of approximately two years of classes dedicated to that degree. The other two years are dedicated to “expanding the student’s horizons,” whatever the hell that means. Those “horizon” years are spent on intro classes that have nothing to do with the major. Some would say these classes are needed to introduce students to new ideas and help them “discover themselves.” I would say the student can do this on his own with a $5 library card. I double-majored in accounting and finance and was required to take “core” classes that included, but were not limited to: golf, swimming, acting, women’s studies, 20th century literature, philosophy and Egyptian history. Yes, careers exist in these verticals, but not mine and I have yet to be asked to analyze Metamorphosis in a job interview. Intro classes that are not built upon are not worth the cost of those classes. Whatever total tuition, room and board divided by two equals, it’s greater than that $5 library card.
Whatever the cause, it’s not the government’s job or the taxpayer’s job to figure out the solution. The government’s job is to create an environment that forces colleges and universities to figure out the solution, but they currently don’t have to because the government doesn’t hold them accountable.
Students need teachers, not professors. Professors are paid to be recognized, not to teach. In fact, professors often complain about their “teaching load,” and shovel most of it off on to graduate teachers’ assistants. Students need classes that relate to their majors, not unrelated “expanding-horizon” classes. Students can expand their own horizons for pennies on the dollar. And it’s up to the student to know what he wants to study before he gets to college. If he can’t figure out what he wants to study, he can take a year off after high school and get a job and that $5 library card. A high school graduate should know what he wants to study before he goes off to college. Of course, if the hapless taxpayer is picking up the tab, there’s no reason to worry about it.
And don’t let the libs or schools get away with, “a college education is about more than economic value.” That excuse enables valueless “expanding horizon” classes, which contribute to price inflation – you can measure economic value, but you can’t put a price on “enlightenment.” These are the same libs that talk about how college graduates make more money than high school graduates. That increased earning power comes from classes taken to achieve a major/minor, not unrelated core classes.
Fixing the problem is simple. The first step is to end the federal student loan program. The federal government doesn’t care how much tuition, room and board cost, so schools have little incentive to control costs. Second, get private lenders into the market. Private lenders are cautious about school loans because they are unsecured, long-term loans. To encourage private lenders, the federal government should guarantee 25% of the loan’s outstanding principal. Private lenders don’t want to deal with defaults, even if 25% of the principal is guaranteed, so they will evaluate the school and the degree before lending. As soon as schools understand they can’t get away with pricing degrees above their market value the schools will have to figure out how to solve the problem. Schools that don’t get their act together will go out of business – the way it should be.
Now, if there is a gap between private financing and education costs, schools will have to risk more of their money to attract students. Yes, schools currently offer scholarships, but they can also offer equity (financial, not social) and debt financing. Afterall, if their degree is so good, they should have no problem extending financing to their students. And the school’s loan would be subordinate to the private lender’s loan, which could be cleared in bankruptcy (unlike federal loans).
Last, federal subsidies for colleges and universities must end. Why would anyone living in Ohio, for example, want their tax dollars subsidizing a school in Massachusetts or California or any other state besides Ohio? States, if they choose, can subsidize schools. As everyone should know, the more local the spending, the more accountable the spender. Confiscating federal tax dollars from Ohioans and sending that money to schools in California and then confiscating federal tax dollars from Californians and sending that money to schools in Ohio only creates waste, inflation and another opportunity for federal politicians to get into a pissing contest over something that doesn’t need federal involvement (or urination).
I have $45 thousand in federal student loans and am against (not) free college. Pushing (not) free on to the taxpayer will only make the cost/worth problem worse, we just won’t notice it as much because there won’t be any debt or default statistics for people to monitor. Politicians supporting (not) free college claim they would hold schools accountable. How would the government even know if schools are charging too much? You can’t base it on graduation rates, schools can just Critical-Race-Theory their way around that and lower standards. Would they base it on 10-year income compared to total cost of the degree? That could work, but there is no chance that liberals would do anything meaningful to address system-wide problems. Colleges and universities are liberal indoctrination camps, pumping out tens of thousands of Democrats every year. And if Republicans tried to hold schools accountable, the libs would start screaming about how conservatives are anti-education, racists, bigots, etc.
It’s shocking and concerning how effective liberals are at blaming the student loan problem on people who don’t want to pay more taxes to additionally subsidize already over-subsidized colleges and universities. The schools are causing the problem, not stingy, heartless taxpayers. The federal government does no due diligence, doesn’t hold schools accountable and then tells borrowers they’re the only one in the equation that will be held accountable. Instead, liberals want taxpayers to replace students on the electric chair. It’s the colleges and universities causing the student loan debt problem. They have to be forced to fix it - on their own.
One final rant: top colleges and universities are top colleges and universities because they admit the top students. By the time a student gets to college he does not need as much third-party motivation or direction – he is, or better be, independent – as he does in grade school. Yes, top schools have top professors, but not because of the professor’s ability to teach.
Let’s try a thought experiment. Let’s say it’s admission season and Harvard and a community college select their freshman classes. But on move-in day, the Harvard students are re-routed to the community college and the community college students are re-routed to Harvard. Then tell a group of businesses that in four years they can only hire from one school and that choice must be made on move-in day. Which school would the businesses choose? They would choose the community college with students that were admitted to Harvard. The reason: by the time the student gets to college, the student matters a lot more than the school.
Cordially,
Renaissance Rants Man