Daily Archives: April 4, 2021

What to do about college loans

So Biden is again talking about college loan forgiveness, there is once again a lot of buzz about reducing or outright excusing college loans, and both sides are providing feeble arguments.

So, just upfront on this, let me state that there are, at present, no government college loans in my name. I have paid off everything in that department, so while I know people whom this will affect, nothing here affects my credit report or bank account one way or the other.

So I think the best way to go over this is to go over some of the bad arguments.

Bad Argument 1 (from the Right): “You took out a loan; it is your responsibility to pay it back.”

This argument wants to treat a college loan as it is entirely equivalent to a small business loan or a mortgage.

Let’s test this out.

Okay, first, college costs have risen drastically over the last few decades because (1) Government subsidies and loans have allowed colleges to jack up their prices (2) Government has been less than accommodating to the expansion of colleges, either cracking down on institutions with low standards with the intent of shutting them down rather than working with them to improve their standards or conversely not caring at all and letting the low standard places grow like weeds (depending on which side is in power it’s on of these extremes or the other…no moderate way of regulation to offer incentives to improve) (3) government has all but shut out private loans except at the most usury stakes.

Does this compare to a traditional loan? Well, in the way that the government has had a hand in creating the housing bubble through their encouragement of the sub-prime market, there is a comparison, and indeed, some cities with their NIMBY nonsense have instituted a similar lack of competition. But this is where the comparisons cease.

It should also be noted that as it is the government who is responsible for the price increases, it’s hard to say, “here we jacked up the price you pay for it.”

But unlike a lot of those loans, where you could declare bankruptcy if can’t pay your loans, you can’t declare bankruptcy for most college loans. Now you might think that is a good thing because people shouldn’t have to pay back what they borrow, realize that one of reasons why Congress is granted the power to set laws on bankruptcy is because that even in the 1780s that saddling people with life long debt is the surest way to stifle an economy. Even in an era where they understood next to nothing about economics, they knew this. People need to get out from debt sometimes and shouldn’t be punished for their entire life for a bad decision…and the way we treat college loans throw that out the window.

Bad Argument 2 (from the left): Education should be free

No. No, it shouldn’t. Things cost money. Whether medical care or education or anything else, the dimwitted progressives who think it is a right simply because they want it. Things cost money. You have to pay people to perform these functions. Teachers need money to live. Building requires capital to be built and be kept up to code. There need to be administrations to make sure the whole thing runs well, and there need to be regulations and thus regulators to ensure that standards are met from an outside perspective. And all that costs money. Hence it cannot be free.

And just having the government pay for it isn’t free because people pay taxes to provide that government money and history shows that things that the government pays for are usually wasted. For instance, the highest-paid government figure in almost every state is a college basketball or football coach… significant investment of taxpayer funds right there. All of it wasted on the the most useless of expenditures.

And before the crazy left says tax the rich…please remember that your beloved Nordic countries tax the rich at a lower percentage than the US does. That’s right; it’s the middle class that gets their pockets picked in your beloved Sweden and Norway. Stop saying you want to be like Sweden until you admit that would require driving up taxes on the middle class and the poor—which personally I would rather avoid as the middle class is traditionally where innovation comes from.

Now, what is a fact is that college should not cost as much as it does. And the government could have a hand in that. College textbook prices are the definition of a cartel designed to create monopolistic price controls. Justice Department could get on that. The government could also state that it would only supply specific percentages of funds for individual colleges that do not meet the criteria of cost-saving measures. Maybe cut the useless taxpayer-funded sports programs at all public schools. The rest of the world runs sports by the free market; perhaps we could try doing the same thing.

Bad Argument 3 (from the Right): It’s wrong to make taxpayers pay for this.

While things should not be free, it is not like this is not something that has a high rate of return for taxpayers. The fact of the matter is, for most people, the better the economy does, the better they do in the aggregate. The more people who are educated, the better the economy does, especially right now if we focus that kind of education in STEM fields.

We are burdening the portion of our society with the most potential with ridiculously high loans on the very thing that made them have high potential.

It is hurting economic progress, which is something we very much need. While the stock market has been going up, more meaningful metrics like worker productivity and innovation have been stagnant for the last decade. And while I’m sure there are more than a thousand causes for this, probably the fact that the people most likely to come up with innovations that will breathe true life into the economy have a college loan to worry about and thus can’t afford to open the next Apple or Amazon might have something to do with it . Keeping this segment of the workforce burdened hurts the economy and therefore hurts taxpayers who didn’t get a college degree because their life is not being made better by the educated as it should be.

Now the question really should be which method would most benefit the average person, but neither side wants to deal in this kind of technical and rational debate about models of investment. But this is more egregious when the argument that comes from the Right, which was supposed to be the side that understood investment and prosperity.

Bad Argument 4 (from the left): everyone should go to college

Wouldn’t that be nice? Maybe someday.

But right now, not everyone is up to that. Indeed, probably more people need to invest in trade skills, and we should likely expand what loan programs exist to more readily include such options. But not everyone is capable of handling college-level work, and right now, the Flynn effect isn’t exactly working fast enough to make me think that this will change at any point in my life. However, we should put more investment into vocation and trade school training for rising markets.

But let’s make something clear.

The future is people with a college education.

If you think you can have a nation that survives on people without education, you are looking for a nation that will quickly join Rome, Byzantium, Athens, the Tang Dynasty, the Gupta Empire, and Carthage in the dust bin. Every year machines and computers do more and more work and nothing is going to change that. All those great jobs that you look to vocational training programs to provide workers for…well, guess what, they’re going to be gone sooner rather than later.

Now here are some good arguments:

The government, through their ill-thought-out loan program, has incentivized colleges to jack up prices, they have helped create a monopolistic market, viler than any trust they have broken up, that forces people to choose between not having an education and, ergo, not having economic security later in life and or having an education and debt. There are many people to blame for this, but the federal government has a great deal of blood on its hands in this situation.

So should the government forgive loans? Perhaps, they caused this, and they should foot the bill to some degree, but they should do so in a way that stops this death spiral of inflation and unacceptable loans.

Biden’s proposal for a 10K across the board forgiveness is probably a good start; it is relatively neutral in forgiving loans that people have no matter what economic bracket they’re in. It vastly improves the economic outlook of the group of people, educated adults, who having more financial security will translate that security into more innovation and investment in the economy at a time that we desperately need such things. And this will have economic effects that benefit even those who don’t have college loans. But the Biden administration or whoever comes next should work further on some other issues.

1. They should offer a further 5-10K reduction for students who go to or went to colleges that agree to a governing set of cost-cutting measures. Things like getting rid of sports programs which only waste money and do nothing for education; reducing funding for unnecessary extracurriculars (student unions can charge more on a voluntary basis to find some way to pay for their activities through market means); encouraging programs that put lower-level courses into online systems that can serve more students with less overhead costs.

2. Federal and state governments should work to change all funding for education from the current model where schools own the children to a completely voucher-based program where every American citizen from the age of 3 to 21 gets a voucher that can go to any accredited school program, or their parents can spend it on approved homeschooling resources. This will encourage more people to get their first two years of college done at a community college (as a state voucher would probably cover a community college but not a typical four-year institution). The aftereffect of this is that more resources don’t have to be wasted on programs for freshman and sophomore undergrads. It would also, coupled with strict state and federal standards, and making vocational and trade schools more open to people. Further, this would encourage more gifted students to—rather than going the AP/IB route in high school— to simply get their GED in their mid-teens, then go to a community college in the space that would usually be filled with their Junior and Senior year and then use the remaining years of the vouchers for paying a for a good portion of the rest of their undergrad.

3. To further encourage the growth of community colleges that can offer the same education that the first two years of any four-year university can, we need to admit that having a Master’s degree does not make you a better teacher (at least not in non-STEM fields) and that good teacher are what we need in these community colleges. Thus we have to come up with a program designed to accredit people who want to teach at a higher level than just high school but who may not want to go through all the bizarre theory classes that are usually (A) so specific they don’t come up the content for a community college course and (B) so detached from reality that they don’t make better teachers.

4. We need to encourage private loans to be the primary choice before federal loans for college. There have been several options, such as allowing loans to take a percentage of income for the first 20-30 years off a person’s income. This places a more significant market force on college education as people will be driven to loans with better rates, and those rates will be based on likely earned income by profession. Yes, as an English major, it might seem a little hypocritical of me to suggest we should put in a system that encourages more and more STEM majors and fewer humanities majors—but STEM is typically more valuable to society in terms of immediate quality of life. However, the fact is that most loaning institutions will probably quickly realize that double majors (one in STEM, one in the humanities) are the best investments, and they will encourage people to be as broadly educated as possible—a true liberal education that encompasses all fields of learning.

5. Another possibility is for states to offer tax credits for companies to pay for their employees to get further education that will be fully vested after so many years of education. * The private sector needs more educated people; they can pay for it. All they need is the legal coverage to say that if an employee leaves before they get their investment back, that they can require the employee to pay them back on a reasonable timetable and at an affordable interest rate. This would also make employers far more invested in providing a positive workplace because the only way they will really get their money’s worth is to have the employee stay.

If all of these items, along with others I probably haven’t heard of, were put in place, it would reduce debt by individuals, minimize government interference in colleges, and improve the economy and quality of life for the American people.

*I say the states because if I had my way, there would only be one federal income tax rate, same rate for all income brackets, only individuals, no married or single distinction, and corporations pay the exact same rate on their profits. There would only be a single deduction for all individuals, and most costs for businesses would not be taxed. The last thing I want is more loopholes and incentives in the tax code as, even for the best reasons, such efforts at the federal level always lead to more disaster and corruption. States can be far more responsive and adaptive for the best policy in this matter.

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