The cost of a college education has been increasing faster than inflation and, as a result, students are leaving college with more debt than they used to.
This has been described as a crisis, but I’m not so sure. The average student debt is a little under $30,000 or about what you would pay for a new car. For four years of education that will pay dividends financially and otherwise for a lifetime, that doesn’t strike me as unreasonable.
But the overwrought rhetoric surrounding this issue has prompted some Democratic presidential candidates, most notably Sen. Elizabeth Warren, to propose plans that would forgive some or all student debt.
This is just about the least progressive idea I can think of.
When we forgive student debt what it means is that every other taxpayer has to make up for it. The most ambitious plan comes from Warren. She claims that she can pay for the $640 billion cost of her plan by taxing the 75,000 richest families in America, but of course that’s not how it works. Revenue that comes from her tax on the super rich and goes to forgive student debt is revenue that can’t go to health care, aid for the poor, public schools, natural resource protection or a myriad of other, what I would call, better causes.
How is this fair to the person who didn’t go to college but went to a trade school and is making a good living, raising a family and paying his taxes? How is this fair to the recent graduate who chose a state school her family could afford, took part time and summer jobs to help pay for room and board, and didn’t spend a semester in Europe?
Warren’s proposal would forgive student debt of up to $50,000 for graduates with household incomes under $100,000. Let’s look at three very plausible hypothetical scenarios and how they’d be impacted by Warren’s plan.
First, there’s Michael. Michael went to Milwaukee Tech High School, got good grades and followed his father into the trades as an electrician. Now he owns his own small business and employs four other people. He’s doing well, has a family and is fixing up a house in the old neighborhood. He never went to college and his student debt is zero.
Then there’s Jessica. She comes from a middle-income family and her parents made sacrifices to save for her education. Still, they couldn’t pay for all of it. So, Jessica saved every birthday check from grandma and every $20 she got for babysitting and had several thousand dollars saved for college. She also worked full time during the summers and got a part-time job on campus during the school year. She chose UW-Platteville because she could afford it and because she was interested in engineering, a strength of that school. She worked hard, got good grades and was highly sought after by engineering firms. Five years later she’s in management and she and her wife are earning well into the six figures. But Jessica couldn’t quite get all the way through college without taking out a loan. In her last year she took one out for $10,000.
Finally, let’s consider Alec. His family was well-off but his parents, Tad and Fiona, lived at the edge of their incomes. They bought a 4,000-square-foot house, leased the best cars every couple of years and took fabulous vacations. As a result they didn’t save as much as they should have for Alec’s education. Still, they wanted him to go to a top school in large part because their friend’s children were going to Ivy League schools. But Alec didn’t apply himself in high school so he and his parents settled for a small but very expensive liberal arts school on the east coast. Alec spent a pricey semester abroad in France. He left college with a $50,000 debt, but now he’s in the second of his “gap” years, trying to find himself while snowboarding in the Rockies and waiting tables in Lake Tahoe in the summer.
How would the Warren plan affect Michael, Jessica and Alec? Well, since Michael had no debt he gets no benefit. Same goes for Jessica. Because her household income is well over $250,000, the cut off for any forgiveness under the Warren plan, she also gets no benefit. She’ll still have to pay off that $10,000 loan plus interest.
The big winner is Alec. His entire $50,000 loan and interest would now be forgiven. He can keep snowboarding and looking for himself. And (bonus!) because Tad and Fiona cosigned his loans they’re off the hook too. To celebrate they’re taking a trip to Italy, though they’ll have to take out a loan.
How is this progressive? How is this fair? How does this make any sense at all?
I agree with South Bend Mayor and presidential contender Pete Buttigieg. “Americans who have a college degree earn more than Americans who don’t,” Mr. Buttigieg said while addressing college students in Boston. “As a progressive, I have a hard time getting my head around the idea of a majority who earn less because they didn’t go to college subsidizing a minority who earn more because they did.”
There are better solutions that don’t require a new government program. For example, instead of living in an already affluent and stable neighborhood, a college grad with high debt could buy a small house in a less desirable neighborhood or community and build their adult life there. That could end up reinvigorating struggling communities and school districts with an influx of college-educated citizens.
And in truly disastrous individual cases, our society does provide a solution in declaring bankruptcy. It’s painful but it can work and it means that the circumstances of the individual need to be taken into account.
If we are going to put more taxpayer money into student aid, it would make a lot more sense to pump it into needs-based financial aid programs like Pell Grants.
Finally, it’s just a life lesson that actions have consequences. Recent graduates with big debts cannot possibly be surprised. They and their parents took out the loans, they knew what the repayment schedule would look like, they promised to pay the loans back and they chose majors with at least some idea of what kind of income could be expected after graduation.
Personal responsibility is a lesson kids should learn long before freshman year.
