Student-Loan Forgiveness and the National Debt
September 10 | Posted by mrossol | Biden, Big Govt, Economics, Education, US DebtSource: Student-Loan Forgiveness and the National Debt – WSJ
Illustration: Chad Crowe
The colorful Ohio Gov. Jim Rhodes once likened George Romney’s run for the presidency to “a duck trying to [make love to] a football.” I wish he had been around to put a label on the federal student-loan program. In the sad catalog of its failures, the federal government has set a new standard. President Biden’s debt-cancellation announcement represents the final confession of failure for a venture flawed in concept, botched in execution, and draped with duplicity.
The scheme’s flaws have been well chronicled. It’s regressive, rewarding the well-to-do at the expense of the less fortunate. It’s grossly unfair to those who repaid what they borrowed or never went to college. It’s grotesquely expensive, adding hundreds of billions to a federal debt that already threatens our safety-net programs and national security. Like so much of what government does, it’s iatrogenic, inflating college costs as schools continue to pocket the subsidies Uncle Sam showers on them. And it’s profanely contemptuous of the Constitution, which authorizes only Congress to spend money.
When the federal government took over the loan program in 2010, President Obama claimed it would turn a profit of $68 billion and that “we are finally undertaking meaningful reform in our higher education system.” Credit where due: a dead loss of hundreds of billions of dollars and tuition costs that continued to soar can fairly be described as “meaningful.”
There are, and long have been, better ways. Colleges should always have been at some risk for any non-repayments by graduates. One can view such defaults as a breach of warranty, as degrees could be thought to imply that their bearers were prepared to be productive citizens, with the market value and personal character to live up to their freely chosen obligations.
Even a modest percentage of shared liability for non-repayments would have significantly affected schools’ behavior. The financial exposure and potential embarrassment would have driven material changes in the rigor of teaching and the amounts they charged and encouraged students to borrow. Such a system would have amounted to a fair request that institutions stand behind their product.
Of course, much of this unpaid debt would never have been accrued if colleges hadn’t raised their prices at the highest rates of any category in the economy. Thanks to the subsidy gusher, that was easy to do. But it wasn’t right or necessary.
I have been asked countless times about Purdue’s record of holding tuition and fees flat since 2012 while lowering room, board and book costs. It is less expensive to attend our university, in nominal dollars and for all students, in-state or out, than it was a decade ago.
I’d like to claim that this was a triumph of managerial brilliance, but I can’t. We simply asked ourselves each year, “Can we solve the equation for zero?”—meaning what would it take to avoid a fee increase? Placing top priority on containing student costs has driven lower ratios of administrators to faculty, less gold-plating on new buildings, modernized and consumer-driven health plans, and other simple changes. Meanwhile, not coincidentally, enrollment and revenues have surged.
Ten years on, more than 60% of our students graduate debt-free. Debt per student has been cut in half, to just over $3,000. Had Purdue raised tuition at the national average, students’ families would have sent us more than $1 billion more than they have.
Along with marketable knowledge and skills, Purdue aspires to foster character in its students. Watching each year as more than 99% of our graduates honor their student-debt obligations, we take pride in them. But I’m uncertain what to say to them as they see their less-responsible contemporaries bailed out—with, adding insult to injury, a portion of the tab handed to them as taxpayers.
When, not if, our national debt forces a traumatic reckoning, asset sales will likely be part of the emergency plan to preserve safety-net payments and some vestige of discretionary government. Along with surplus federal land and structures, it will make sense to sell whatever remains of the student-loan portfolio. That will be a fitting end to a bankrupt lending system born of bankrupt policy choices.
Mr. Daniels is president of Purdue University. He served as governor of Indiana, 2005-13.
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