2. There Is No National Student Loan “Crisis”
Let’s agree—as we should—that the price of college is artificially high, and student aid has fueled a lot of that inflation. Let’s also agree that for some individuals their debt may be crippling. Even with that, student debt broadly does not constitute a “crisis” warranting deployment of a government-spending nuke. While we are accustomed to news coverage featuring people carrying six or even seven-figure debts, the most recent data indicate that only about 65% of new bachelor’s degree holders graduated with debt, and the average amount for them was about $29,000. That’s sizeable, but the earnings boost of a bachelor’s degree versus only a high school diploma is roughly $1 million over a lifetime, justifying the debt. For a little more perspective, the median American household as of 2014 had about $18,000 in student loan debt and $13,000 in auto loans. Those numbers are pretty close, and unlike education cars mainly depreciate in value. The median home debt was far larger than either at $120,000. Meanwhile, the household income at which student debtors would no longer get some forgiveness under Warren’s plan is $250,000, by her own admission only the richest 5% of households. Median U.S. household income is about $61,000.
3. It Misdiagnoses The Problem
Like others before her, Sen. Warren blames cutbacks in state support to public colleges for the problem of skyrocketing prices. The facts aren’t with her. For one thing, private institutions have typically received very little direct state and local funding, yet inflation-adjusted tuition and fees at four-year nonprofit, private colleges have risen 225% since 1980. Next, state and local taxpayer funding for public higher education has risen: Since 1980, inflation-adjusted state and local educational appropriations to colleges have gone from $50.3 billion to $85.8 billion. Where we see a decrease is in per-pupil appropriations, but that is a consequence of hugely increased enrollment, not tight-fisted taxpayers. And as the chart below shows, real per-pupil funding has been on a roller coaster but with an essentially flat trend line. Meanwhile, inflation-adjusted sticker prices rose 319% at four-year public colleges and 208% at community colleges. This has translated into per-pupil, inflation-adjusted public college revenue from educational appropriations and student charges rising from about $9,300 in 1980 to $14,600 in 2018, a 57% increase. In other words, public colleges have raised revenue through students well beyond what has been needed to offset appropriation dips.
4. Too Much Of A Good Thing
An argument for Warren’s plan is that we want an educated populace, but the price of college makes getting it too difficult. It is understandable but misses that the price of college is so high largely because of federal policy driven by that very belief. The feds have provided increasing student aid on the grounds that everyone should be able to pay for college. But colleges, which always have something they could do with more money, have kept raising prices.
Warren’s proposal may not fix the sticker-price problem. She proposes that the federal government dangle taxpayer dollars in front of states to incentivize them to spend more of their citizens’ dollars on higher ed, but it is not clear if the money would go to students to cover tuition-and-fee charges, or to schools so they won’t have those charges. And tuition and fees are only part of the cost of college. There’s also room and board. Warren would increase Pell Grant funding by $10 billion a year from the current level of about $30 billion to help cover those. So she might just keep fueling the sticker-price skyrocket. On the flip side, if she incentivizes public colleges not to charge tuition and fees, we’ll likely get other problems: rationed spots, and highly impersonal institutions like many in Europe, because the schools won’t primarily need to attract students to get paid.
More fundamentally, even if education is good you can have too much of it. There are 24 hours in a day. Since education is good you should spend all of them getting educated, right? Of course not. If you don’t spend time obtaining and preparing food, you die. If you never exercise, you die. If you never sleep, you go insane and—yup—die. Obviously, things other than education are also important, and we have to balance them all.
A major mechanism that helps us balance our myriad needs and wants are prices that people pay with their own money, or money they get voluntarily from others. Prices, reflecting countless individual decisions, tell us the value people collectively place on any good or service versus any other. When government subsidizes something it degrades the crucial power of price, leading to over-consumption and waste.
Reflecting the pernicious effect of subsidies, much of what goes on in college isn’t really education. It’s parties. It’s hanging out with friends. It’s hanging out with friends at on-campus waterparks. This isn’t what all students spend all their time doing, but some broad facts show that learning really is becoming less and less of what goes on in college. Time spent studying by the average student fell from 25 hours per week in 1961, to 20 hours in 1980, to just 13 hours in 2003. Literacy rates of bachelor’s and advanced-degree holders droppedbetween 1992 and 2003, and still appear low. Meanwhile, employers have increasingly demanded degrees for jobs that did not previously require them, at least in part because the government has incentivized ever-greater higher ed consumption, and for employers, degrees are easy, basic, screening devices.
5. Who Drives The Economy?
Senator Warren assumes that if people weren’t saddled with student debt they would be buying lots of stuff and spurring the economy. But the federal government has already projected budgets on the assumption that the loans will be repaid, and if they’re erased someone will have to make up the difference. Warren has targeted rich folks to do that, but in touting potential economic growth she failed to note that the rich, if not taxed to pay for forgiven loans, would likely use the money for something else that is quite possibly more productive. If they put it in the bank it would be lent to people looking to maybe buy homes, or start businesses. If they bought stock it would go into companies that employ people and produce things. If they bought yachts it would employ yacht makers. The question is whether student debtors, relieved of their debt, would use their windfall in more economically productive ways than “ultra-millionaires.” Warren offers no evidence that they would. It’s the problem with her plan in a nutshell: it is a simplistic solution that ignores too much complicated reality.
