By Cathy Keim
Last month I wrote about Governor Hogan expanding the You’ve Earned It! subsidized mortgage program for young adults with college loans. Politicians can never resist giving away other people’s money especially if it makes them seem caring and gets votes.
For a quick review, college student loan debt is now at 1.2 trillion dollars and growing. The average debt for a four-year degree is $29,000, but it can skyrocket to $100,000 or more for a graduate degree. This debt is having huge impacts on young people that are starting their careers severely burdened with loan repayments. These young voters are prime targets for politicians. Wouldn’t you vote for somebody that promised to get rid of your debt?
Unfortunately, the politicians are aiming at the wrong target to cure the problem.
A study released in July by the Federal Reserve Bank of New York was only the latest piece of evidence of what conservatives have long knew: Increasing public support for college tuition, especially in the form of federal tuition subsidies, has inflated its total cost.
Every time the politicians make student loan money easier to obtain, the colleges just raise the tuition costs. Colleges and universities have increased their administrative personnel by 60% between 1990 and 2003. The university presidents and top administrators make CEO-type salaries in the 7-digit category. And let us not forget the building programs. Many schools have swimming pools with floating rivers for relaxation. The students certainly should be stressed just thinking about how they are going to repay all the loans they took out to attend the institution.
In 2006 the cap on loans for graduate school was raised and the borrowing levels skyrocketed. Many of these students will avail themselves of the debt forgiveness programs to handle the loans. For example, Georgetown University created a clever loophole: if a law grad works for the government or a non-profit for ten years with a salary under $75,000 per year, then they can qualify for a loan forgiveness program. Who wouldn’t borrow money, not only for tuition but also to live on, if they know it will be forgiven?
President Barack Obama came out with free community college. Governor Martin O’Malley and Senator Bernie Sanders are topping that with four years of college for free.
Hillary Clinton has offered up a package that many voters with college loans will find attractive.
In a more blatant payoff, Clinton proposes not only offering new subsidies for those who are going off to college, but also new subsidies for those who already left. But “refinancing” student loans and offering more generous income-based repayment plans will do absolutely nothing to improve education attainment or economic competitiveness. It is simply a transfer from the federal fisc to Americans with above-average educations and incomes. Income-based repayment is not a bad idea per se, but Clinton’s plan includes forgiveness after 20 years, which is a huge payoff for those with the biggest loan balances.
Would you be more likely or less likely to borrow money if you knew that in twenty years the loan would be forgiven, no questions asked? For those of us that live in the real world, the answer is absolutely: not only will people borrow money, they will borrow more money. If you were guaranteed that you would not have to pay it all back, then why would you scrimp and do without when you can live in luxury?
Hillary’s plan is almost entirely silent on controlling total costs, and, by increasing the supply of low-cost loans, the level of funding from state governments, and increasing other subsidies, proposes to lower out-of-pocket costs in the way that we’ve already seen will backfire.
Every time Washington proposes to fix something, it usually gets worse. They are already micromanaging the public school system from DC with mandate after mandate. The more they get involved in the university system, the more of a quagmire it will become. The college marketplace needs to be subject to local and free market forces. Then it will be able to react to the demands of the students and parents, not to the mandates of the feds.
The increases in tuition are not going to hire and pay more professors. Professors’ pay has not increased; in fact, more college instructors are poorly paid adjunct professors that teach by the course for far lower salaries than tenured professors. Just like with our public schools, much of the money gets eaten up by administration costs to ensure that the mandates are met.
While these plans will not contain college costs, they will achieve their goal of bringing out self-interested voters for the presidential election.