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Forgiveness Won’t Solve the Debt Crisis

Something has to change the calculus between wages, tuition costs, and declining state funding.

Joe Biden dropped a little Christmas present in the punch bowl in late December. He extended the “pause” on student loan payments for another six months. It’s clear Biden remains under pressure to cancel student loan debt, a Democratic white whale.

Whatever happens next will not be the last of this, especially heading into the midterms. Despite Democrats’ ambitions, student loan forgiveness would accomplish little. But major changes in how education is paid for, and what it costs, can lift America into the 21st century.

Start with trying to figure out the benefits of student loan forgiveness for Joe Biden and the Democratic party. You come up with a) it’s free money for the recipients and b) it may be worth more votes for Democrats in the younger demographics than it causes them to lose in the older ones (polls show the divide near even). It’s a payoff for votes.

Tag-along arguments are rubbish. Stuff like: the comparatively small amounts of money per person involved with loan forgiveness will help balance massive economic and/or racial inequality; or that people will spend the money set aside for loans on flat screens and game credits to boost the economy more than spending the money on tuition, and this will all somehow end “privilege.”

The Trump administration already deferred student loan payments because of Covid, so canceling payments outright would not lead to much of a short term boost in consumer spending (and on the negative side, would help drive inflation). And unless forgiveness also includes tax reform, most of the “forgiven” money will suddenly be taxable as income. Forgiveness won’t help America be smarter because the people with the debt already have their degrees.

About here in most articles about student debt things get emotional. So meet Maria, a bright 22-year-old who always dreamed of giving back to her community via a degree in BIPOC Gender Studies. But upon graduation she discovered she owed a gazillion dollars in student loans plus whatever this “interest” thing is, and that Craigslist had no jobs listed for her major! Her part-time gig at Target only pays enough to cover her Spotify bill. She says she is a victim of an unfair system.

You’d think that was fiction, yet the Atlantic goes as far as calling student loan debt “immoral,” because, in the writer’s words, it is “a high debt burden proportional to my income. The burden is so heavy that it has delayed major milestones. My partner and I are soon-to-be newlyweds in our 30s with stable, full-time jobs…Thanks largely to our student-loan debt, we don’t know how we’ll be able to afford kids.” She also has to rent. OMG.

Politically, debt relief may hurt as much as it sort of helps. Many voters would be very uncomfortable with the idea of saying to people who paid their debt off through sacrifice and hard work, ha ha, joke’s on you suckers, if you’d only waited another 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 the college money (75 percent of those who enlisted said they did so in part for the school help)? Thanks for your service sucker, and hey, sorry about the arm. You could have stayed home and smoked herb and gotten the same financial deal.

Despite the horror stories about 22-year old kids with six-figure debt, only 6percent of student borrowers owe more than $100,000. This small percentage of super-borrowers accounts for about one third of all student loan debt. The government limits federal borrowing by undergrads to $31,000 for dependent students and $57,500 for those no longer dependent on their parents. Those who owe more than that almost always have borrowed for the discretionary decision to go to graduate school. About 30 percent of undergraduates finish school with no debt, and 25 percent with less than $20,000.

Student loan debt isn’t even the critical part of our economic problem. Mortgages and home equity loans account for some 71 percent of the $14 trillion in ballooning consumer debt. Student loan debt is 11 percent, with car loans at 9 percent. Formal income-based repayment plans have existed for some time now for student loans, with no equivalent for other debt. Nobody has ever seemed too concerned about mortgage debt relief—not in 2008 when Obama and Biden bailed out Wall Street over Main Street and not in 2021 with Biden back.

Student debt is relatively small on a per person basis, and a fraction of overall debt. This is more of a political issue than an economic one. But everyone wants to do something. So, it’s time to reform education costs.

Unlike in nearly every other developed country, most of which offer free or low-cost higher education (Germany, Sweden and others are completely free; Korea’s flagship Seoul National University runs about $12,000 a year, around the same as Oxford), in America you need money to go to college. Harvard charges $63,000 a year, a quarter of a million dollars for a degree. Even a state school will charge $22,000 a year. There are only a handful of paths to higher education in America: have rich parents; be poor and smart (financial aid); join the military; or take on debt.

No matter which path you take, the problem is the price of education. Like many of the old, crumbling things in America built a long time ago in an industrial nation which no longer exists, our paying for education needs a serious fix. Forgiving debt is a Band Aid on a throbbing wet tumor. The next crop of freshmen will just start accumulating new debt in the fall. After we forgive all that and do nothing to change how much colleges charge, we’ll just have to do it all again in a few years. Think about it like immigration amnesty.

The cost of college increased by more than 25 percent in the last 10 years. In Louisiana tuition has doubled since 2008. In Alabama and Arizona, tuition at public colleges and universities is up more than 60 percent. The price continues to rise eight times faster than wages. For example, in 1978 when I attended Ohio State, tuition was $1056 a year. Minimum wage was $2.65, so one could pay tuition by working year-long about eight hours a week.

In 2021, tuition is $10,338 for the average in-state student at a public college (it’s more than twice that for out-of-state students and nearly four times as much for private schools) and the minimum wage $8.80. It takes about 23 hours a week, a more than half-time job, to pay, though most businesses cap part-time workers at less than 20 hours to avoid triggering Obamacare payments. It is no surprise, then, 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.

That rise in costs goes hand-in-hand with a decline in spending per public university student in 41 of 50 states. Funding cuts on the state level, driven by decreasing tax revenues and political decisions to spend money elsewhere, are responsible for 79 percent of tuition increases.

Any one-time debt relief will change nothing in the underlying factors driving students into debt. Something has to change the calculus between wages, tuition costs, and declining state funding.

One solution would be to tie federal funding to a state’s willingness to lower public tuition to match a reasonable work expectation from a full-time student. So tuition would go up or down based on what someone could earn at minimum wage with, say, 15 hours of after-school work a week. It would be possible once again to work your way through school.

There’s also another way, sadly far beyond the intellectual reach of a once-great nation like the United States. The United States, still struggling to transition from a soot-and-steel base to something that can compete in the 21st century, can only do so through education. More smart people is an investment in one of the most critical forms of infrastructure out there—brains. 

A single F-35 fighter plane costs $178 million. Dropping just one plane from inventory generates 3,358 years of college money at today’s average costs. We could pass on buying a handful of the planes and still defend ourselves well, and give the money we saved to states directly for education. Or, we could use the money to create some type of civilian service alongside the military; there’s got to be something that needs doing enough (other than humping a ruck across the next Afghanistan) that the government will pay for college.

For a nation that can clearly afford to pay for a broader base of accessible higher education if it wants to, it is wrong to leave the future to a Darwinian system of financial survival overlaid with a Dickensian debt plan. But new priorities and serious reforms, not free money, are the solution.

Peter Van Buren is the author of We Meant Well: How I Helped Lose the Battle for the Hearts and Minds of the Iraqi People, Hooper’s War: A Novel of WWII Japan, and Ghosts of Tom Joad: A Story of the 99 Percent.

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