The Congress is currently confronted with a difficult debate and vote regarding student loans and higher education funding. Unless Congress acts, interest rates on outstanding loans will double in July of this year. Democrats are already spinning this debate as a win-win situation. If the measure is voted down, it creates ammunition in the general election to be used against the GOP with young voters, a constituency that went for Obama in 2008 on the now discredited “change and hope” mantra. Considering how the situation is framed, they can lay the blame on Republicans. And if it passes, then it would achieve a goal near and dear to the liberal heart.
There is no doubt on either side of the aisle that a problem exists here and that the problem is projected to become progressively worse the more the government kicks the can down the road, which appears to be the preferred strategy of Obama on many levels. If the bill is not passed, assuming a graduate borrows the maximum $23,000, the new interest rates would add about $5,000 over a 10-year repayment period. In effect, this situation was set up by the Democrats when they won Congress in 2007 and lowered the interest rates to the current 3.4%. In essence, they kicked the can down the road. The total Americans affected are about 7 million with the bulk being middle class. One can see the political problem and the reason why Romney has embraced the idea of extending the lower interest rates. Some papers have stated that student debt is expected to pass that of credit card debt, if it hasn’t already, and to exceed $1 trillion. Basically, this is yet another bubble the federal government has created.
While household income has increased 10% in 25 years, college costs have tripled. Extending the lower interest rates would cost the government about $6 billion annually. And while both sides accurately point out the importance of a college education towards future economic growth for the country, and personally, they seem to overlook the more important factor that permeates education at every level. Specifically, it appears that any time the federal government gets involved in anything, costs explode. And the reason is simple: its easier to spend the money when someone else is paying for the service, in this case tuition assistance. Colleges have no incentive to keep tuition costs low because the government is providing a financial incentive to maintain the status quo. One example: since 1993, the number of administrators per 100 students has risen 39% while tuition costs have exploded with no discernible in productivity. That is only one example of the problem.
There is no doubt that strains on state budgets have had negative effects on tuition costs. In California, college tuition costs soared 21% in one year alone. Yet, the answer is not to pump more federal money towards the states to make up for those shortfalls, but for the federal government to facilitate reforms that would encourage colleges and universities to lower tuition costs across the board for everyone. This, more than Pell grants and Stafford loans, would make higher education more accessible to a broader base of the population. But nothing in anything Obama has proposed would lead to this outcome. He has proposed a government scorecard that would allow buyers- potential students- become better consumers for their educational dollars. However, the private sector already provides (Forbes, for example) that very service and its doubtful a government database would add measurably in this area.
There are no shortages of innovative ideas and programs that could potentially lower tuition costs. Places like Harvard and MIT are experimenting with online courses that would seriously drive down tuition costs. The nonprofit Western Governors University- founded by Governors from 19 western states- is focusing on core competencies in key areas at an annual average tuition cost of $6,000, or about half the tuition of a traditional state college. Private industry could also help here and I have a suggestion for Warren Buffett. Instead of commiserating about the fact that he “pays less taxes than his secretary,” perhaps he could use some of those “tax savings” to help fund some of these innovations.
There is the mistaken belief that forgiving outstanding student debt- the preferred strategy of the deadbeat Occupy people- would create an economic stimulus. However, studies have indicated that if the entire $1 trillion was wiped away tomorrow, it would inject $56 billion at most per year into the economy. Although not an insignificant sum, it is hardly the “investment” proponents suggest given the long-term costs. In effect, liberals and Democrats, by expanding access to sometimes non-deserving students has created yet another de facto entitlement. Obama himself said such: “In America, higher education cannot be a luxury. Its an economic imperative that every family must be able to afford.” No one within the GOP doubts the importance of higher education. By political pandering, they are attempting to gain the high ground. It is only the means towards the ends that separate the GOP from the Democrats.
In a previous entries a while ago, I discussed education on a more comprehensive basis. Unlike other conservatives, I believe there is a role for a federal Department of Education, albeit one with a limited role and one that disengages from K-12 education altogether. In fact, the monetary savings alone would fund higher education programs (they would still exist) and have some left over to pay down the debt. Throw in an end to agricultural subsidies (another pet peeve for another day) and the government is on the path to financial sanity. The reforms I proposed would be direct tuition grants modeled on successful programs (by federal government standards). One such program is the military’s ROTC program where in exchange for financial help, the graduate gives a few years of their life in the service of their country. Another example is the TEACH program which gives grants up to $4,000 a year. In exchange, the graduate agrees to teach in a high need subject area within a high-need school district. In France, the government pays 100% for a medical education in exchange for working in government-run clinics or hospitals for a set period of time. They are then compensated about $55,000. This may seem low for a doctor, but they also do not have to pay payroll taxes and they have no debt upon graduating. After that, they are free to leave for private practice. The recipient of the TEACH program leaves college with limited or no debt provided they live up to their end of their bargain. Expansion of these grants into other high-need occupations here- and we could quibble about who would determine these occupations- would result in contractual quid pro quos where the long and short-term employment needs of the country are matched with deserving college students with the education paid for by the government provided they graduate and actually worked in those areas.
Assuming the federal government got out of K-12 education, those funds could be diverted to these grant programs. Obviously, there are potential problems. For example, I can foresee the “religious studies lobby” crying on Capitol Hill that their constituency is excluded. While researching this, I was struck by some student comments around this common theme: “I may have to take a higher paying job that I don’t like just to pay off my debt.” Well, welcome to life! Many students do not have a clear career path when entering college- what about them? There would still be private student loans, private savings, scholarships, state grants, endowments and other programs available. No is suggesting totally dismantling student loans, but just getting the government out of that business as lender. Its conceivable that liberals would want some affirmative action type safeguards, but I would argue against social engineering of this sort. There are obviously qualified students of every race or ethnic group who may not be able to afford college even under the best of circumstances. It is only those select few who should be the beneficiaries- under strict guidelines- where the government would “roll the dice” on funding. Some may argue that this is nothing but social engineering itself. Its matching educational funding to needs. We can either pay for the education of our citizens for this, or we can import educated occupations in need from the likes of India, China and Europe (do we really need any more Dr. Patels?).
As part and parcel of this scheme, colleges must do their part from their end. If the government is to do business with them, then they must undertake innovative reforms to lower and keep low tuition costs. This would benefit everyone, not just the recipients of grants. Whether this involves cutting administration, putting that new student center on hold, remote learning, online classes, advanced placement credits, etc., they must demonstrate under clear benchmarks that they are achieving these goals. In effect, the government could penalize uncooperative colleges financially. They may very well buck the trend and fill their classes, but its doubtful considering the number of students reliant on the current financial aid infrastructure.
Like any Democrat/liberal, Obama’s solution is to throw money at the problem. Yet, that seldom solves the problem. True, innovative educational reform is one area where the GOP excels. One issue of importance that crosses any subset of the population is that of education because its importance is universally accepted in America. True reform is a winning issue for Republicans that does not require additional expenditures of money.
In short, the current proposal would simply kick the can down the road as Republican House leaders have stated. Perhaps, only a temporary extension- perhaps no more than one year- is the most the GOP should bargain for in negotiations. But afterward, it is imperative that fundamental reform be undertaken. I understand the political pitfall in 2012. But as many pundits and economists have accurately noted, aggregate student debt is a ticking time bomb. One would think politicians learned their lesson with another government-created bubble bursting not that long ago.