![Elizabeth Warren (D-MA) preaches progressivism but is her student loan proposal anti-progressive? [Credit: NPR]](https://i0.wp.com/www.dougsbriefcase.com/blog/wp-content/uploads/2014/04/credit-npr.jpg)
Elizabeth Warren (D‑MA) preaches progressivism but is her student loan proposal anti-progressive? [Credit: NPR]
To judge from Warren’s record so far, she would be prefer that the country be run for the benefit of its biggest universities.
Warren comes by her special interest pandering honestly. She joined the US Senate after a 20-year stint on the faculty of Harvard Law School
Universities benefit from government-backed student loans the way that realtors once benefited from the government’s massive subsidies of the mortgage industry: they can charge more for their product. College tuitions have risen by 538 percent since 1985, far in excess of health care spending (286 percent), housing costs, and the general rate of inflation.
College costs more in part because students can borrow more, amortizing the costs over time. Students and their families borrow against the increased future earnings that a college degree supposedly makes possible. This theory works, up to a point. We seem to be in danger of moving beyond that point. College graduates earned $3,200 less in 2013 than in 2000.
To be fair, Warren’s views may be skewed by her long association with Harvard. Graduates of that institution and other elite universities are disproportionately represented among the 1 percent that Warren resents. As Harvard alumnus Charles Murray has exhaustively documented, his fellow Ivy Leaguers and graduates of other top-tier institutions populate super-ZIPS – neighborhoods where the richest and most influential Americans live – and dominate government, Hollywood, academia and (pace Professor Warren) Wall Street. They are the titans who govern us, define our values and profit disproportionately from government interventions on behalf of the investment class that Warren professes to despise.
Those who graduate from less prestigious colleges, by contrast, tend to find themselves among the 99 percent. Many struggle to find work. Others are forced to accept positions for which they are underpaid and overqualified. Many bend beneath the weight of the debt they incurred to obtain a university degree. Outstanding student loan debt surpassed $1 trillion in 2011, more than total outstanding credit card debt ($798 billion). Average per capita debt stood at $27,253 in 2012, 58 percent higher than in 2005.
And while students are borrowing more and earning less, the pace of borrowing, fueled by federal loan programs, is picking up. New debt incurred in academic year 2011–2012 exceeded $100 billion, compared to around $60 billion just five years before.
That acceleration in borrowing is helping to fuel increases in college tuitions even as the economic value of the degrees they confer declines. The American Dream of a college education, like the American Dream of homeownership, may be overrated. If a diploma no longer confers the earning power it once did, perhaps colleges should reduce their tuitions.
But American universities, like the largest banks that Warren detests, are too big to fail. And too well-connected. Over the past decade or so, their lobbyists succeeded in eliminating banks from the student lending programs. By having the government lend directly to students (i.e., cut checks directly to universities) without the intermediation of lending institutions with some, albeit imperfect, experience in managing the risks associated with long-term lending, universities put the government directly on the hook for their own well-being.
The result is that much of the more than $1 trillion in outstanding student loan debt will never be repaid. That is by design. The government operates programs that make default a virtue, deliberately enticing students to stick the taxpayers with their unpaid debt. The government operates the “Pay As You Earn” program (which could more accurately be named Don’t Pay As You Don’t Earn), which allows qualified borrowers to make monthly payments amounting to 10 percent of their discretionary income, even if that amount doesn’t cover their interest due.
It also forgives any debt that remains after 20 years. Those who take government jobs or work for non-profits are eligible for debt forgiveness after just 10 years. President Obama wants to expand this to all borrowers, not just those who borrowed beginning in 2011, and make the loan forgiveness (default) exempt from taxation.
So how have universities responded? One elite university – Georgetown Law School – has invited new enrollees to enjoy the pleasures of legal loopholes by borrowing the total cost of their education (around $75,000 annually for Georgetown students, including tuition, fees, books, and housing expenses).
Georgetown’s website boasted that such enterprising borrowers “might not pay a single penny on their loans—ever!” Such a deal. And all you have to do, Georgetown advises its aspiring legal beagles, is take a job with the government or a non-profit agency and stay there for 10 years. Georgetown will make the loan payments over that period, after which the remaining debt is forgiven.
Georgetown being a Jesuit university, you might expect that it has an angle in all this (apologies to Pope Francis). You would be right. Georgetown includes the cost of the loan repayment in its tuition. So, essentially, the university pays nothing, the student pays nothing and the taxpayer eats the $225,000 in law school tuition and expenses.
Lest this sound like a conservative screed, the loan forgiveness program has recently come under criticism in two separate papers from the left-of-center Brookings Institution. The first paper found:
“Not only is loan forgiveness unnecessary for ensuring that monthly payments are affordable for borrowers, loan forgiveness creates incentives for students to borrow too much to attend college, potentially contributing to rising college prices for everyone. This is highlighted by our finding that graduates of expensive colleges receive the largest benefits of income-based repayment.”
Expensive colleges like Harvard perhaps?
The second paper analyzed Senator Warren’s bill to slash interest rates on student loans to infinitesimal levels. In the unkindest cut of all, Brookings says that the Warren plan “fails to redistribute wealth in a progressive manner” and that it “flies in the face of progressive values by benefiting the affluent at the expense of the disadvantaged.”
Still, Brookings misses the real anti-progressive element of Warren’s proposal: it’s not just affluent students at elite universities who benefit from these “anti-progressive” subsidies, but the universities themselves. Harvard may be a non-profit, but it holds an endowment recently valued at $32.7 billion. In part because it attracts a large proportion of students from wealthy families and in part because the government does so much to subsidize the rest, Harvard’s endowment can continue to grow as it raises tuitions and fees and pockets billions in government grants and contracts.
Warren no doubt objects to having her proposal labeled “anti-progressive,” particularly by the Brookings Institution. She sees herself as an intrepid class warrior, embracing the cause of the downtrodden against elites like her and her former students. But if she could take a cold, hard look at her position, she might see that she is advocating the very sort of cronyism that she often correctly condemns.