Opinion | Morgan Liddick: Student loan debt needs to be accounted for
On Your Right
U.S. homeowners lost about $3.3 trillion net worth in the 2008 home mortgage crash. What followed sent the stock market lower, resulting in $6.6 trillion in equity-market losses. Total, about $10 trillion, one-fifth of the world’s GDP. According to the U.S. Census Bureau, in 2008, the overall delinquency rate for home mortgages was 6.9 percent, with a 19.9 percent rate for subprime loans. Ready for round two?
Student loan debt is now at $1.2 trillion dollars and increasing at about $30,000 an hour. According to credit-rating site Experian, student loans are the only type of consumer debt not declining; their total has risen 84 percent in the past seven years. Only 69 percent of this debt is being paid back. This is important because financial institutions like Morgan Stanley and Chase Bank don’t hold most of these notes. According to the Federal Reserve Bank of St. Louis, $891.83 billion is held by the Federal government, which means there’s no middleman this time. Instead, any default is going to come right out of our pockets. And, if you expect to see one thin dime of it paid back later, well … you haven’t been keeping up on current events.
In January, Obama suggested making the first two years of college “free,” meaning one of his constituencies would enjoy a benefit paid for by others — in this case, those with 529 educational savings accounts, whose tax exemption would be eliminated. Simply put, he wanted those saving for college to pay the tab for those who weren’t — a proposition so loopy that his fellow Democrats were the first to shovel dirt on its face. Now, Hillary Clinton has proposed dumping $30 billion a year into tuition programs to “make college as debt-free as possible.” Details to follow. Her opponent Bernie Sanders promptly more than doubled the amount, saying he would eliminate tuition for four-year undergraduate programs. A tax on “some financial transactions” would pay for it.
Republican presidential candidates Rick Perry, Rand Paul and Marco Rubio all have plans, mostly focusing on controlling costs. But no one, Democrat or Republican, has explained why tuition has risen so far so fast; outstripping inflation, GDP growth, the CPI or just about any other measure one might use. They don’t because the answer, while obvious, is inconvenient.
College tuition is experiencing rampant inflation for two reasons.
First, a national myth has been created — with the help of the higher education industry — that everyone, regardless of previous academic performance, capability or interest, must graduate college to avoid penury in the modern economy. For those intent on careers in the “STEM” fields, a four-year undergraduate degree is necessary, yes. But, in modern America, these are a small minority of those in undergraduate programs. According to a 2013 Department of Education analysis, about 20 percent of entering freshmen chose a “STEM” field — including both social sciences and psychology; of those, about 40 percent switched majors out of the “STEM” area. Only a minority end up working in their field of study, so there is a problem of perceived versus real need that leads many to indebt themselves for degrees that are not marketable. Nevertheless, the myth of indispensability persists.
This, while lower-cost technical training for all sorts of jobs, from HVAC technicians to computer-controlled machine tool repairmen, is neglected — creating scarcity in vital job sectors considered second-rate by our college-focused educational system and out-of-mind for most seeking post-secondary education.
Second, college tuition inflation exists for the same reason other market sectors see it: an excess of cheap money. With the introduction of low-cost, generous student loans backed by the Federal government, colleges and universities quickly understood they could raise their prices to formerly unreasonable levels — since those paying the tuition were using someone else’s cash. In many ways, this mirrors the housing bubble that formed after amendments to the Community Reinvestment Act in 1999 channeled a river of funding to “nontraditional borrowers” who had little chance of paying it back. The collapse of 2007-8 quickly and catastrophically followed.
In this aspect, both Democrats’ proposals are irresponsible. While superficially offering relief to their clients — students vote Democrat in large numbers — what they are really doing is attempting to put out a fire with gasoline. It doesn’t matter whether they funnel $30 or $70 billion into student loans. The faster they shovel our money onto students, the faster educational institutions will gobble it up. In the end, the sole beneficiaries will be the colleges and universities Mr. Sanders and Ms. Clinton have portrayed as greedy. The losers will be the students, who will find themselves ever further in debt for degrees, which do not pay back the investment. And, the rest of us will pay the price of another loopy attempt to defy the laws of economics.
Morgan Liddick writes a weekly column for the Summit Daily.
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