Joe Biden dropped a little Christmas present in the punch bowl at the end of December. He extended the “pause” on student loan payments by six months. It’s clear Biden remains under pressure to write off student loan debt, a Democratic white whale.
Whatever happens next, it won’t be the last, especially as we approach midterms. Despite the Democrats’ ambitions, canceling student loans wouldn’t do much. But major changes in how education is paid for and what it costs can bring America into the 21st century.
Start by trying to understand the benefits of student loan cancellation for Joe Biden and the Democratic Party. You come up with a) it’s free money for recipients and b) it may be worth more votes for Democrats in the younger demographic than it causes them to lose in the older ones (polls show the to divide almost equal). It is a reward for the votes.
The arguments of tag-along are hogwash. Stuff like: the relatively small amounts of money per person involved in the loan cancellation will help balance massive economic and / or racial inequalities; or that people will spend the money set aside on loans on flat screens and gambling credits to stimulate the economy more than spending the money on tuition, and this will all end in a way or another “privilege. “
The Trump administration already deferred student loan repayments because of Covid, so outright canceling payments wouldn’t lead to much short-term increase in consumer spending (and on the negative side, would help boost inflation). And unless the pardon also includes tax reform, most of the “forgiven” money will suddenly be taxable as income. Forgiveness won’t help America be smarter because people in debt already have their degrees.
By the way, in most of the student debt articles, things get emotional. Then meet Maria, a brilliant 22-year-old who has always dreamed of giving back to her community through a gender studies degree from BIPOC. But after graduation, she found out that she owed billions of dollars in student loans, plus whatever that “interest” is, and that Craigslist had no jobs listed for her major! Her part-time job at Target pays only enough to cover her Spotify bill. She claims to be the victim of an unfair system.
You might think it was fiction, yet the Atlantic goes so far as to call student loan debt “immoral“, Because, in the words of the writer, it is” a high debt proportional to my income. The burden is so heavy that it has delayed important milestones. My partner and I are soon to be newlyweds in their thirties with stable full-time jobs… Thanks in large part to our student loan debt, we don’t know how we will be able to afford children. She must also rent. OH MY GOD.
Politically, debt relief can hurt as much as it helps in some way. Many voters would be very uncomfortable telling those who have paid their debt through sacrifice and hard work, ha ha, joke on you, if you had only waited one more year it would have been free. Why is college debt more special than debt for medical care, a car you need to have a job, etc. What about people who joined the military for college money (75 percent of those who enlisted said they did so in part for school aid)? Thanks for your sucker service, and hey, sorry for the arm. You could have stayed home and smoked weed and got the same financial deal.
Despite the horror stories of 22-year-olds in six-figure debt, alone 6percent of student borrowers owe more than $ 100,000. This low percentage of super-borrowers represents about one third of all student loan debts. The government limits federal undergraduate student loans to $ 31,000 for dependent students and $ 57,500 for those no longer dependent on their parents. Those who duty more than that have almost always borrowed for the discretionary decision to go to diploma school. About 30 percent of undergraduates complete their education debt free and 25 percent with less than $ 20,000.
Student debt is not even the critical part of our economic problem. Mortgages and home equity loans are a part of 71 percent of the $ 14 trillion in consumer debt. Student loan debt is 11 percent, and auto loans 9 percent. Formal income based repayment plans have been around for some time for student loans, unmatched for other debts. No one has ever seemed overly concerned about mortgage debt relief, not in 2008 when Obama and Biden bailed out Wall Street above Main Street, and not in 2021 with Biden’s return.
Student debt is relatively low per person and represents a fraction of overall debt. It is more a political question than an economic one. But everyone wants to do something. It is therefore time to reform the costs of education.
Unlike almost all other developed countries country, most of which offer free or low-cost higher education (Germany, Sweden and others are completely free; Korea’s flagship Seoul National University spans $ 12,000 per year, roughly like Oxford), in America you need money to go to college. Harvard fees $ 63,000 a year, a quarter of a million dollars for a degree. Even a public school will charge $ 22,000 one year. There are only a handful of avenues to higher education in America: having rich parents; be poor and smart (financial aid); joining the Army; or get into debt.
No matter which path you take, the price of education is the problem. Like many old crumbling things in America built long ago in an industrial nation that no longer exists, our funding for education is in need of a serious solution. Forgiving the debt is a band-aid on a throbbing wet tumor. The next generation of freshmen will begin to accumulate new debt in the fall. After we have forgiven all of this and done nothing to change the price of colleges, we will have to do it all again in a few years. Think of it as the immigration amnesty.
The cost of college education has increased by more than 25 percent over the past 10 years. In Louisiana, tuition fees have doubled since 2008. In Alabama and Arizona, tuition fees at public colleges and universities have increased by more than 60 percent. The price continues to rise eight times faster than wages. For example, in 1978 when I attended Ohio State the tuition was $1056 one year. The minimum wage was $ 2.65, so you could afford the tuition by working about eight hours a week all year round.
In 2021, tuition fees are $ 10,338 for the average state student at a public college (that’s more than double for foreign students and almost four times more for private schools) and the minimum wage of $ 8.80. It takes around 23 hours per week, more than half-time work, to pay, although most companies cap part-time workers under 20 hours to avoid triggering Obamacare payments. It is therefore not surprising that 40 percent of kids don’t graduate within six years because of the hours they need to work, a vicious cycle of more years, more costs.
This increase in costs goes hand in hand with a decrease in spending per public university student in 41 of the 50 states. State-level funding cuts, driven by declining tax revenues and political decisions to spend money elsewhere, are responsible for 79 percent of tuition fee increases.
Any one-time debt relief will not change the underlying factors that drive students into debt. Something needs to change the calculation between salaries, tuition fees and declining state funding.
One solution would be to tie federal funding to a state’s desire to reduce public tuition fees to match a reasonable work expectation of a full-time student. So the tuition would go up or down based on what someone could earn at minimum wage with, say, 15 hours of after-school work per week. It would again be possible to make his way to school.
There is another way too, unfortunately far beyond the intellectual grasp of a once large nation like the United States. The United States, still struggling to move from a base of soot and steel to something that can compete in the 21st century, can only do so through education. More smarter people is an investment in one of the most critical forms of infrastructure around: brains.
A single F-35 fighter jet costs $ 178 million. Dropping a single aircraft from inventory generates 3,358 years of money for today’s average cost colleges. We could bypass buying a handful of planes while defending ourselves well and giving the money saved to states directly for education. Or, we could use the money to create some type of civilian service alongside the military; there must be something that needs to be done enough (other than ruck through the next Afghanistan) that the government will pay for the university.
For a nation that can clearly afford to pay for a larger base of accessible higher education if it wishes, it is wrong to leave the future to a Darwinian system of financial survival superimposed on a Dickensian debt plan. But new priorities and serious reforms, not free money, are the solution.
Peter Van Buren is the author of We had good intentions: how I helped lose the battle for the hearts and minds of the Iraqi people, Hooper’s War: a novel about WWII in Japan, and The Ghosts of Tom Joad: A 99% Story.