Last week, President Obama convened a “Summit on College Opportunity.” The gathering at the White House focused on “supporting colleges to work together to dramatically improve persistence and increase college completion.” For his part, the President lamented that “higher education increasingly feels out of reach.”
True enough. Nationwide, college tuitions have increased 440 percent over the last 25 years—faster than increases in both the Consumer Price Index (the measure of general inflation) and health care costs over the same period. To attempt to pay for these historic price increases, students and their parents have amassed 1.1 trillion dollars in student loan debt, which, for the first time in history, now exceeds total national credit card debt.
Were good intentions sufficient, we might be more confident that the President’s efforts to address the college affordability and student loan debt crises would bear fruit. Instead, one of the key elements in his project to bring down college costs—student loan forgiveness—promises only to exacerbate the problem.
We can see this clearly when we reflect on the unintended consequences of the loan forgiveness plan, according to which graduates with debt are relieved of—“forgiven”—their student loan debt after a certain period of time. To begin, where does this unpaid debt “go” after the federal government has forgiven it? It is transferred to the backs of federal taxpayers. This transfer may not be subsidized through increasing federal taxes—at least not yet—but rather, is likely to go the apparently more politically expedient route of being added to this country’s already 18 trillion dollar national debt. Someday, someone is going to have to pay this down.
Moreover, one of the programs designed to implement Obama’s vision for student loan forgiveness “privileges” (to use a term that’s all the rage these days) those who go on to work for the government or non-profit organizations (the “Public Service Loan Forgiveness” program). Under this plan, debt-carrying graduates employed by the government or a non-profit organization can have their loans forgiven in roughly half the time as occurs under other forgiveness plans. Public Service Loan Forgiveness kicks in after ten years, whereas other forgiveness plans require at least twenty years of payment. Why privilege these graduates over those who enter the private sector? If the official justification is that government and non-profit workers make a “superior” contribution to society, the Administration has yet to make the case for the “inferior contribution” of those in the private sector, whose wealth creation provides the surplus funds that the federal government chooses to redistribute.
To go further, some critics worry that such “privileging” is of a piece with what they charge is a bias against profit-making generally. Exhibit A in their charge of an anti-profit agenda is the U.S. Department of Education’s “Gainful Employment” rule, which looks to punish underperforming for-profit colleges—but leaves unpunished the plethora of non-profit institutions with graduation rates and post-college employment outcomes that are as abysmal as the targeted for-profit schools.
Worse, consider this likely unintended consequence of student loan forgiveness. Given the pressure on schools to enroll as many bodies as possible, it is far from inconceivable that in short order university Admissions offices will use student loan forgiveness to overcome students’ and their parents’ concerns with the high price of their institutions. How? Students will be shown that, although the “sticker price” for four years of college is “X,” the real price, apart from scholarships and grants in aid, consists of a markedly smaller dollar amount—the amount that the student has to pay before forgiveness kicks in and wipes the slate clean.
Needless to say, to the extent that this recruitment strategy works, the universities will have correspondingly less incentive to restrain tuition increases. Without such an incentive, it is natural to expect that the tuition hyperinflation under which this country is suffering will only rise further, and, with it, student loan debt. And as student loan debt increases, so will the amount added to the national debt through loan forgiveness.
Simply put, while the federal government has announced that it is here to help with college affordability—a crisis of its own making, through subsidizing student loans in the first place, argue critics such as former U.S. Education Secretary William J. Bennett—the unintended consequences of further federal involvement will be ever-escalating tuitions, student loan debt, and the national debt.
Skeptics of the President’s vision spy in it a strategy whose long-term effects will be to kill the goose, driving students away from the wealth-creating sector at the same time that its “forgiveness tax” drains more wealth from our already debt-burdened Republic. The result? We could have more government and non-profit employees, but fewer of the private sector employees required to pay for all this.
Doubtless, no one denies that our $1.1 trillion student loan debt crisis urgently demands a solution. But forgiveness is not that solution. It is instead the fruit of the same ideological tree that has both given rise to the crisis and promises only further to inflame it.
In this light, some argue that the only truly effective solution to the crisis produced by federally subsidized student loans is to end them, thereby restoring the desperately needed financial discipline provided by free markets. If ever there was an area that cries out for market-based discipline, the current financial mess in American higher education is it.