By Kevin D.
Williamson
Thursday,
February 10, 2022
As Democrats prepare to run
themselves into a cinder-block wall at 103 mph in the midterm elections,
progressives are desperately trying to grab the wheel and swerve. Because our
policy-making class consists mainly of people who lack the moral imagination to
consider anything very far beyond their own immediate parochial interests,
progressives are once again turning to that supposed national emergency:
college loans.
The case for college-loan forgiveness is
not economic; the median borrower spends less than 4 percent of his
income on payments. It is purely political. The relatively well-off
urban and suburban professionals who are responsible for a disproportionate
share of student debt have the Democrats’ ear, and people who are actually poor
do not, in part because Democrats are confident that in poor communities votes can be
secured through other
means. And the people at the last stop on the
college-loan money train — the university personnel whose jobs are funded by
student debt — are a powerful constituency themselves.
People who go to college are — you will
not be surprised to learn — relatively well-off. Even those who go to college
and fail to get a degree earn more money than those who do not go to college at
all. And student debt is disproportionately a problem for affluent people: The
amount of student debt held by the top 25 percent of households by income
is almost three
times that held by the bottom 25 percent
of households by income.
There is a pretty good reason for this: In
many fields, more education means more income. That is not true only for those
with top-shelf law degrees and MBAs but also for those in fields such as public
education, where in many districts early-career teachers with a master’s degree
can expect to earn an extra $15,000 a year (or more) than their counterparts
with a bachelor’s degree. In Pennsylvania, where the median household income
is about $65,000 a year, there are at least 12,500 public-school employees
with individual salaries above $100,000 a year. A couple of
married vice principals can easily have a household income well into the six
figures, which is pretty comfortable even with some college loans to pay. These
relatively affluent college-educated professionals are the Democratic Party’s
most important constituency, especially when they are government employees and
doubly especially when those government employees work in education.
That is why you don’t hear Democrats
talking very much about the dire economic straits of high-school dropouts, who
are the people who actually have it worst economically. If we want to spend
public money to provide debt relief to needy people, we probably would be
better off paying the mortgages of low-income homeowners, or giving a fresh
start to poor families with a few thousand dollars in unpaid credit-card bills,
or, better still, bailing out those with unpaid bank debts, which, though usually
small in dollar terms, can have ruinous effects on household finances by
cutting off access to the regular banking system. That would be better policy,
but it would be worse politics.
So, screw the poor — there are hungry
young lawyers in need of our assistance!
As it turns out, college debt is so
correlated with income that it is difficult to design a loan-forgiveness
program that does not disproportionately benefit high-income
households. Thanks to the Becker Friedman Institute for Economics at the University
of Chicago, you can use this very
interesting and nifty tool to
run through several different possible program designs for college-debt
forgiveness and see how the economic benefits would be distributed.
For example, consider a program with these
features: 1. It forgives up to $50,000 in college debt per adult per household;
2. It begins phasing out eligibility at incomes above $75,000, so that 3. those
with incomes in excess of $125,000 a year would not benefit from it at all.
Even under a program with such progressive features, the majority of the
benefits would go to relatively high-income households. As Constantine Yannelis
of Chicago Booth and Sylvain Catherine of the University of
Pennsylvania run the numbers, the value of the debt forgiven to borrowers
in the top 10 percent of incomes would be almost ten times the
value of the debt forgiven to those in the bottom 10 percent. The largest
overall beneficiaries would be those in the eighth (third-highest-earning)
centile.
Gail Collins, writing with her usual
almost-pristine ignorance in the New York Times, offers a very fine
example of how muddleheaded progressives are
on this issue. First, she praises President Joe Biden for pushing back the next
student-loan-repayment deadline: “That saved you — well, the cosmic you — $5 billion a
month in interest alone.” The obvious
problem with this line of thinking is that these interest payments were not
only owed by someone — they were owed to someone,
another constituency within that “cosmic you.” This isn’t cost-free debt
relief, but a transfer of wealth from taxpayers (including low-income
taxpayers) to people who borrowed money to go to college. As noted above,
people who borrowed money to go to college are a relatively high-income group.
And within that group, the people with higher incomes
have larger loans. Collins goes on to assume both that the
president has the unilateral power to forgive college loans — which he does not
— and that the problem is congressional Republicans, who control neither the
House nor the Senate. “Maybe Congress could just restrict the loan forgiveness
to folks who aren’t making much money,” Collins writes. “Nah. Republicans
really, really hate bills that are targeted at folks who aren’t making much
money.”
Collins obviously hasn’t bothered looking
at the facts of the case — one starts to understand how Sarah Palin
got the idea that writers on the Times opinion
pages can write basically anything they want about a Republican without fear of
editorial pushback and without any pesky demands that they tell the truth.
And that’s a shame for Collins, because
the facts of this case are actually pretty interesting.
As Yannelis and Catherine explain, there
are two ways to calculate the value of debt forgiveness, and the high-income
borrowers come out on top in both of them. The first way to calculate the value
of the debt forgiven is to rely on the simple loan balance: A $20,000 loan
forgiven is worth $20,000, in that version. But reality is more complicated:
For one thing, low-income borrowers already enjoy debt forgiveness through
income-based repayment, a scheme in which eligible borrowers pay a certain
percentage of their income toward the loan for a certain number of years, at
the end of which any remaining balance is dismissed. Forgiving a $20,000 loan
isn’t really worth $20,000 in the case of a borrower who was actually going to
be required to pay only $8,000. Running the numbers according to present value
rather than on-paper loan balances underlines the fact that the model of loan
forgiveness that channels the most benefits to low-income borrowers is
income-based repayment, i.e., a variation on what we are doing already. The
problem — the political problem — is that this fails to provide big economic
benefits to the relatively high-income households that Democrats actually want
to subsidize, and, in so failing, leaves most of the outstanding student debt
untouched.
At some level, this is all unnecessary. We
already have some pretty good models for educating students without burdening
them with debt. It costs a lot of money to educate a Princeton undergraduate,
and the students who attend that school are far from universally wealthy, yet
83 percent of Princeton undergraduates finish with no debt at all — and those
who do borrow money graduate with, on average, about $9,400 in debt. A
Princeton degree and more than a decade to pay off a loan amounting to
one-third the price of a Toyota Camry is not a terrible deal. Of course, the
Ivy League schools have large endowments, but there isn’t any real reason to
saddle students at the state schools with much debt, either.
Consider the case of my alma mater, the
University of Texas: In 1991, the school had a budget of $700 million, and only
9 percent of that came from tuition payments. (One senior official caused a
miniature scandal by very frankly admitting that there was no economic reason
for the school to charge tuition at all, and that the school did so only
because the state would not let it raise admissions standards — tuition was a
population-control measure.) Today, tuition makes up 20 percent of the
university’s budget — and that budget has
grown to $3.4 billion, more
than twice what it would have been if it had merely kept up
with inflation. Those increases aren’t being driven by expanded enrollment,
either: UT’s spending continues to go up and up, even though the university has
fewer students today than it did 20 years ago. Put another way: Spending in
real terms more than doubled, but undergraduate enrollment has slightly
declined. Why? There is about $1.6 trillion in student debt outstanding — you
put that much money on the table, you can bet somebody will find a way to pick
it up.
Here is the thing to understand: High
levels of student debt have not been driven by rising tuition; rising tuition
has been enabled by high levels of student debt. The market for college degrees
is a lot like the market for cars: If you can connect buyers with cheap credit,
then you can raise prices. (You’ll have noticed that car-dealer ads on the
radio almost invariably talk about prices in terms of monthly payments rather
than total cost.) And nobody is better at offering cheap credit than the U.S.
government.
Another way to think about the situation:
Student loans are a form of political money-laundering, a way of spending money
on an important political constituency (university faculty and staff) without
accounting for that spending as spending in the budget. If the
government writes a college a check, then that is an expenditure;
if the government makes a loan, then that is, for accounting purposes, an asset.
We have spent a generation using college students as mules to haul money to
universities that function as employment programs for Democratic activists and
political foot-soldiers — that is why the explosion in university budgets has
been driven not by the cost of classroom education but by administrative expenses.
We have a lot more associate deans of students than we used to, and those jobs
are filled overwhelmingly by people who are politically, culturally, and
economically associated with the Democratic Party. Even in relatively
conservative states such as Texas, the political donations of people associated
with the universities run ten-to-one in
favor of Democrats. Debt forgiveness is just the last step
in trying to hide where the money went.
If a commercial bank made loans to anybody
the way the U.S. government does to college students — with no regard for
creditworthiness or ability to repay — regulators would shut it down. We are
comprehensively irresponsible with our standards when it comes to federal
student loans — not because cheap money ultimately helps students, which it
doesn’t, but because it puts money into the pockets of people with important
and powerful political connections. Seen from that point of view, Uncle Sam is
the No. 1 predatory lender in the country.
If you want young people to have less
debt, then there is an easy first step: Stop lending them money. Turn off the
spigot and see if the water stops rising.
Longer term, our policies should deal more
forthrightly with the fact that there are several distinct and only loosely
related activities that go on under the aegis of higher education: education
for its own sake, job training, and research. Each of these is valuable in its
own way, and each should enjoy some level of government support — in some
cases, more generous support (and more intelligently administered) than what we
offer now. But we should be unsentimental in making distinctions among these
activities and deploy our limited resources programmatically.
Or we could keep burdening students with
debt and using them as a collective human slush fund for the benefit of
reliable Democratic voters and reliable Democratic donors.
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