By Kevin D. Williamson
Thursday, April 18, 2019
Here is a three-part plan for something practical the
federal government could do to relieve college-loan debt. Step 1: The federal
government should stop making college loans itself and cease guaranteeing any
such loans. Step 2: It should prohibit educational lending by federally
regulated financial institutions or, if that seems too heavy-handed, require
the application of ordinary credit standards in any private educational
lending, treating the student himself as the main credit risk in all cases,
including those of secured or unsecured loans taken out by parents or other
third parties for that student’s educational expenses. And 3: It should make
student-loan debt dischargeable in ordinary bankruptcy procedures.
The most likely end result of this would be the effective
abolition of government- and bank-based financing of college education in all
but the most narrowly defined circumstances. Good riddance. That leaves about
$1.5 trillion in existing debt on the table, a very large number from which the
federal government derives very little income, about 0.1 percent a year, or
$1.5 billion — a fact that should enter into our calculations about whether we
attempt to collect every nickel of that money or, perhaps, slowly forgive some
of that debt for students who keep up with their payments and are otherwise
good citizens, maybe at a rate of 2 percent of the principal a year.
It is time to shut down the Bank of Uncle Stupid.
Colleges will have two choices: Bring their tuitions down
to a more reasonable rate or, if they are so inclined, work out financing
arrangements of their own. This would not present too much trouble to
splendidly endowed schools such as Harvard and Princeton, or to public schools
with substantial resources at their disposal. A senior official of my alma
mater, the University of Texas, once caused a stir by confessing — in public —
that UT Austin doesn’t need to charge tuition at all but does so mainly as a
population-control mechanism. The problem, he said, wasn’t money as such but
the fact that the state would not let him raise admissions standards.
Admittedly, UT has become a little more selective in recent years.
I have a theory about why there has been so much tuition
inflation: inflation.
When we talk about “inflation,” we generally mean to
denote a general rise in consumer prices; but, properly understood, that is the
result of inflation, not inflation
itself. Inflation itself is an increase in the money supply, and its effects
need not necessarily be general. You can inflate the money supply by printing
money, but you can also do it by expanding credit. Our friends at the National
Association of Realtors and other charter members of the Committee to Reinflate
the Housing Bubble, for example, have a keen understanding of the relationship
between loosey-goosey mortgage-lending standards and brisk sales in the face of
rising housing prices (and rising commissions). Your local new- or used-car
dealer knows that he can charge higher prices for vehicles that are to be financed
by people who care more about their monthly payment than about the total cost.
There are some critics of the federal response to the 2008–09 financial crisis
who believe that the recent run-up in the stock markets and the prices of other
assets is fundamentally the result of inflation through quantitative easing and
other measures. (You don’t have to believe that that was a necessarily bad
policy to believe that this is true, incidentally.) Easy credit contributes to
higher prices.
If you make a few gazillion dollars available to finance
tuition payments with underwriting standards a little bit lower than those of
the average pawn shop, you create a lot of potential tuition inflation. Another
way of saying this is that if Uncle Stupid puts a trillion bucks on the table,
there are enough smart people at Harvard to figure out a way to pick it up.
We managed to provide college educations to those wanting
them for many generations without creating a body of debt larger than all of
the credit-card bills in the nation combined. Our colleges have become faintly
ridiculous places, in terms of their modest academic ambitions (lookin’ at you,
journalism majors, women’s-studies departments, undergraduate programs in
business administration), their top-heavy administrative structures (the number
of administrators per student has exploded along with college debt, suggesting
that colleges are being treated as full-employment programs for the politically
connected classes), their resort-style amenities, etc. We accept more students
but educate far fewer of them — at
much greater expense.
The best way to impose a little discipline on that mess
is to make students, their families, and, most important, the institutions
themselves carry their own water. The current system is exploitative: The
students essentially function as a conveyor belt carrying government money into
the universities, leaving borrowers instead of taxpayers on the hook because it
looks better from an accounting point of view: If we just gave the universities
money, that would show up on the books as an expenditure; lending it to
students allows us to pretend that we have created an asset when all we have
actually created is a great deal of debt and horses**t.
And, hard as it is to believe, it’s even worse in the
so-called trade schools and “professional” programs advertised in subways and
buses from coast to coast. If you want to know how much money has been
transferred to the nation’s bartending academies, the Professional Golfers
Career College, or the Northwest School of Wooden Boat Building under the guise
of student lending, look here.
So, let’s cut the Gordian knot here. Don’t reform student
lending, don’t try to lower the interest rates or create special debt subsidies
for college graduates who follow careers of which the people with political
power approve. Just get rid of it. With a meat ax.
There are lots of smart people at the universities. Or so
we’re told. If they can’t figure out how to teach the liberal arts or
accounting without dipping into the Bank of Uncle Stupid with both hands and
all available snouts, then maybe somebody else should give it a try.
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