A Center-Right Answer to the Student Loan Crisis
'Pay yer Bills' is about as stupid as a Political Slogan can get
I read and enjoy Josiah Lippincott’s writings and observations.
He recently had one entitled “A Sane Solution to the Student Debt Crisis”
It’s a good read and his prescriptions are interesting and challenging. In sum, he proposes nationalizing endowments with a 100% one-time tax of their assets, and then giving outright forgiveness to student debtors.
He has empathy for the student debtors, and he correctly identifies that the system and the banks in particular, are complicit in this system that gives 18 year olds enormous debt loads with basically FUBAR underwriting.
It was a good article and then he challenged me to write my own piece on the topic after I lightly challenged him in the comments. He challenged me to a duel unless I wrote this piece out post haste, so hopefully this meets his approval. I told him I only duel with Hamiltonians anyway.
So here’s my TLDR: The system for financing higher education is a broken system.
Let’s identify the life cycle of broken-ness before proposing solutions:
Colleges spend money on a huge number of wasteful projects entirely unrelated to teaching. They underpay many of their core teaching talent, adjuncts, and other staff while overpaying administrators, bureaucrats, and various ideological extravagance. They are also experts at creating and imprinting collective identity via sports teams and various faux identity games.
Students and parents are fed this line that the only way to be successful in America is to have a college degree. Every effort is made to convince people that this is a silver bullet to professional success. As well, this is also sold to students and parents as a kind of Amish rumspringa where young white collars are allowed to drink, smoke, use drugs, fornicate, and debauch for a few years ‘sowing their wild oats’ until they become mature responsible adults. We’re all just shocked, shocked I tell you, that after four years of debauchery that suburbia loses its luster.
The Government desires to get as many people in college as possible. It socializes young people to be obedient and creates the white collar working class to do the email jobs it prefers. It also makes a substantial sum from grad plus loans. It also helps control the financial markets by constantly issuing this much debt out of thin air.
The political left wants more people in college because it is a four year left-wing indoctrination/re-education camp.
The political right wants more people in college because it never challenges the meme that it results in higher salaries, and because most on the right not-so-secretly despite the blue collar working class.
The banks want more student debt because they make money issuing it, and holding the safe debt. The debt is backed by Uncle Sam, it’s non-dischargeable in bankruptcy, and it forces white collar workers into higher-paying jobs where they will take on even more debts (cars, homes, their own kids sent to college).
And who is the anti-college constituency? Nobody who makes any money off of the deal, that’s for sure.
So that’s the system we’re dealing with here.
Does this system produce results? It’s debatable, but there’s probably a small marginal improvement at best. To what extent it’s the result from just living for four years, and how much is from the actual classroom experience, is hard to say.
If there is any mental benefit to college, I would argue it exists in these three ways:
Structured learning: forcing yourself to think about and spend time, 6-9 hours per week, on a variety of subjects.
Structured thinking: organizing one’s thoughts in the form of a simple essay and five-paragraph format in 8-10 page papers.
Networking: meeting other people your age, who are in your general geographical area, who are interested in the same topics. A student is getting a slice of the ruling class in a generation.
We’re all a little smarter than we were four years ago. Are you $30,000 or $50,000 or $200,000 smarter than you would otherwise have been had you just worked a job? Again, hard to measure.
But for the moment let’s say we didn’t want to change the collegiate system and overall process. We’re not going to try and change people’s minds.
And let’s also take as a given that we assume college has a benefit to the student above and beyond the natural intellectual evolution of people over four years.
Is the system for delivering this service working efficiently? Of course not.
The system of financing higher education has an almost endless list of basic inefficiencies and system failures that could be easily corrected and it would quickly result in a these results and changes:
EXPECTED RESULTS
Expensive degrees with low financial rewards would be discouraged
Cheap degrees would appear for a variety of topical areas
People would not get saddled with debts they can’t afford
Bankruptcies would decrease, and wealth and productivity would increase
Colleges would be discouraged from making more financial mistakes and waste
Those are results that everyone might desire, generally speaking, but few would be willing to pursue the policies necessary to achieve those results.
And while I like Lippincott’s creativity, I disagree with him about just nationalizing endowments. It’s kind of like various schemes to tax the rich, it sounds good, it feels good, but it actually doesn’t raise that much money.
This is because a few institutions have done very well, but most have not done so well.
Most colleges have a paltry endowment. The more famous ones have much more substantial accounts.
I’m not sure that the rise in endowments among the elite schools has caused a rise in tuition and student debt loads. They are a case of correlation, not causation.
There should be some plan that's a little more reasonable.
Part of what's going on in politics on this issue is that the conservative chattering class is bereft of ideas and creativity. Lippincott is offering a potential solution, but most on the right have a hard time elucidating any policy proposal.
Some of the reluctance is no doubt due to the fact that no conservatives or Republicans in power actually undertake any center-right policy reforms. They do tokenism, such as Gov. Ron DeSantis of Florida, and often do exactly the opposite of conservative policies, like Gov. Greg Abbott of Texas, or decide to simply silence the conservative complainers by purging all the conservatives, like Gov. Kristi Noem of South Dakota.
Those are the three models for ‘conservatives’ in power, we get either: Token Reforms, Liberalism, Purges.
So the policy discussions seem kind of quaint, like we’re in a college YAF meeting in the 1960’s dreaming about what conservatives in power would look like, without acknowledging the absolute dumpster fire conservatives in power have been over the past 60 years because of constant betrayals.
As an example, back in the pre-Obamacare era, the conservative answer was similarly: 'dont get sick' and that's a total non-starter for people with chronic diseases. It was a policy answer that ultimately is lazy and reactionary. To their limited credit, the Heritage Foundation tried to outline actual policy ideas that were reasonable and rational, and instead developed Romneycare for Massachusetts in 2006 which ultimately became the blueprint for Obamacare in 2010.
Similarly, the conservative answer right now to student loans is simply “pay yer bills" which is just stupid. It’s akin to the moronic financial advice to simply stop drinking coffee in order to save for a house. It also avoids any details about how stupidly the whole system is currently structured.
As of March 2023, 44 million borrowers owed $1.7 trillion in debt. So the average debtor has $39,000 in student loan debt. Out of 230 million people over age 25 in America, 100 million have a college degree. So that means nearly half of the people with a college degree have this kind of enormous debt they’re carrying.
It also means that colleges are ridiculously too expensive and generating way too few financial rewards.
There shouldn’t be any fix for the legions of debtors until we can fix the system causing this calamity. Plug the hole on the sinking ship before you start trying to rescue the people in the water.
So let’s go through the details here, the ways in which the system could be improved with relatively simple policy changes:
PRICE LOANS BASED ON DEFAULTS. Why are student loans not priced for risk of default by subject area and by borrower, like every other loan issued? A doctor's risk of default is 1000% less than a general studies degree, and yet the profile risk is treated the same. Price the risk accurately within the student loan. Let lower-risk borrowers borrow cheaply, and make it more expensive for higher-risk borrowers. The rate should reflect the risk of default.
KEEP THE INSTITUTION ON THE HOOK FOR DEFAULTS: The college is benefiting from the debt, but is never on the hook for a default. They get to have the capitalized financial benefit to themselves, and the socialized risk of loss spread to the public. They should pay a penalty if their students are defaulting. Colleges should suffer if students default.
CREATE AN ANNUAL MAXIMUM LOAN AMOUNT: The government could easily and arbitrarily set maximum loan amounts that undergraduates could borrow. Instead of subsidizing the full amount of whatever a college decides to set its budget and tuition at, the government could create a hard ceiling for how much debt can be assumed in this situation. Should an 18 year old with no credit score and no family wealth be able to borrow 10k per year, 40k? 100k? A student shouldn’t be able to borrow the full sticker price of a college. There ought to be a limit, if for no other reason than to prevent teenagers from becoming sharecroppers to the banks. 18 year olds shouldn’t be able to borrow blank checks.
FLOAT GRAD-PLUS LOAN RATES. Grad plus loans are artificially set at 8% for no good reason, which has until just recently, always been above the prime interest rate. Why not let the rate float? Because then Uncle Sam can't make $30-50 billion per year off of grad students. Grad loans should have flexible interest rates.
ALLOW FOR BANKRUPTCY. Let people discharge the debts in bankruptcy. That little change was a Democrat priority in 2006 or so. For some reason they never have to pay any price for that handout to the banks. Make the banks accept the actual risk of issuing debt to 18 year olds by losing their shirts when people default. That will change behavior as well. Student loan debt should be treated like any other debt in bankruptcy.
REQUIRE DOWN PAYMENTS. Make people put a down payment of some amount on the issuance of each loan. Again, like every other financial obligation. Require students to put money down for their educations.
ENABLE DEGREE REPOSSESSIONS. Allow institutions to 'repossess' the degrees by invalidating their academic credentials upon default. Prevent people from using the academic credentials if you default on the debt. That will cause people to adjust their behaviors. Allow for negative consequences to the borrower if they default.
VARIABLE DEGREE PRICING. Colleges right now price their service very inefficiently. They typically price “per credit hour” the same for an Engineering course and a History course. The price on those credits should reflect some of their actual costs though. You should be able to get a cheap history course from a near-starving historian, and a more expensive course from a busy and profitable Engineer. This would and should make the humanities cheap, and the business and STEM courses more expensive. Price different degrees differently based on cost and demand.
CHEAPER DEGREES. Incentivize the issuance of cheaper degrees to create price competition. Texas Gov. Rick Perry tried this in 2012 with the concept of the $10,000 degree. Not too surprisingly, the colleges complained they didn’t get enough money to make it possible. Every possible method for reducing the price of degrees should be pursued and tried.
FIX EMPLOYMENT LAW. And the biggest elephant in the room possible: fix employment discrimination law so that employers can screen people without using 'college degree required' as a way to evade the chronically litigious employment applicants who game the system to prey on white collar employers who can't afford to fend off lawfare. Stop letting a degree function as a way to screen employment applicants.
RAISE HIGH SCHOOL STANDARDS. Instead of feeling as though students needed to attend college in order to be employable, high schools should serve that basic purpose. Yet how many students and parents feel as though they are prepared to enter the workforce with a high school diploma? High schools have quietly changed their goals from preparing people for the nearby workforce into preparing students for college. This is a classic accountability handoff. Now that it’s not their responsibility, why bother? High schools should again be focused on preparing students to enter the workforce in their community with the skills and discipline needed to succeed without a college degree. Make government high schools higher performing to reduce the need for college as a kind of finishing school.
Those are policy changes that would reduce the cost of college.
But there are people who are currently with debts, and what do you do for them?
STUDENT LOAN BAILOUT
REFINANCING: Allow students to refinance the loans. This already exists when turning public loans into private loans, but in so doing you lose many associated federal perks with public loans. This discourages many from pursuing this course. The state should allow maximum options when refinancing the debts when rates are low and people properly qualify.
ALLOW DEFAULTS: Allow students to discharge the debt in bankruptcy.
ALLOW PARTIAL DEFAULTS/LONGER FORBEARANCES: Many students face life circumstances because of Bidenomics, where they lose a job or have to undergo a major transition. Right now, there is a medical forbearance and some accommodations for this situation. But there should be an option for people who are facing a crisis that’s longer than a few months but shorter than forever, who don’t want to go into bankruptcy. Allowing people to stop the accumulation of interest during this period would be critical. A default is the worst outcome, so giving alternatives to a default is better than pushing people into insolvency, though I recognize this could easily be abused by borrowers without major safeguards.
TAX DEGREE MILLS: Levy a tax on colleges based on the rate their students fail to repay their debts. Use this money to help offset the defaults. This is a ‘regressive’ tax, so failing institutions would find it harder and harder to compete, which would hopefully make them insolvent faster.
MAKE COLLEGES PAY FOR FORBEARANCE PERIODS: Allow people to have a ‘breather’ with their loans. Make the respective college on the hook for the cost of the interest during the forbearance period.
ALLOW HIGH-DEBT HOME LOANS: Where people have student loans that are being serviced, allow those debts to not be considered the same as credit card debt under the FHA/Lending guidelines for mortgages. This is preventing many with student debt from getting a mortgage, which for most Americans is the path to financial freedom. Because of the way the debt is being currently calculated, it’s pushing many homeowners into apartments.
SEIZE COLLEGE ASSETS TO RECOVER LOSSES: Lippincott identifies the liquid endowments as worthy of seizure and, frankly, that’s a great idea if it were able to raise substantial funds. But most colleges don’t have large endowment accounts, though they often have a large real estate footprint. That footprint evades property tax, among others. It is a financial black hole for local jurisdictions, a cost borne by taxpayers in the form of higher taxes. If a college is abusing that trust by operating wildly inefficiently and financially enslaving students, the state should come in and seize the real estate and other assets of the college. These seizures would be to require them to meet their financial obligations due to the defaulted debt.
CONDITION FORGIVENESS ON CAREER CHANGES: At the risk of being guilty of advocating people “learn2code” - the act of forgiving debt should come with the recognition that it was clearly spent in pursuit of dead-end degrees. Now of course not every poor-salary degree should be cancelled, I believe in history majors after all, but if a student pursued a low-performing degree field and now wants forgiveness, forgiving the debt should come with a basic skills training so that they can now pursue a higher-performing field. Meaning that, if you are an unemployed English major with 50k in undergrad debt, you should be required to prove you are now pursuing a field that is in high demand with your skills. The forgiven debt should come with the condition that the borrower acknowledges transitioning to a field that is personally economically sustainable.
Hard choices are almost always the right choices.
A fundamental problem with politics is that it highly encourages the painless cosmetic fixes in lieu of serious changes.
Higher Ed is in need of serious changes across the board. Changing the financing of college, and the unreasonable debt loads carried by graduates, is a goal that conservatives should figure out a smart answer to. Simply parroting idiotic Ben Shapiro lines about paying back debts is pathetically obtuse.
This collegiate regime is propped up by a thousand little decisions meant to subsidize worthless degrees from degree mills. Change the equation and it will change the outputs.
You know, this meandering article just sucked. I'm not going to delete it, but I'm not proud of this piece. It needed a lot of editing and rework.
I pledge to do better dear readers.