The likelihood of Hillary Clinton becoming the next president of the United States seems to be slipping further and further away as she continues to struggle with the perception that she is out of touch with American voters. Her latest policy proposal on student loans and debt reform is undoubtedly a part of her plan to address this perception issue. Unfortunately for Mrs. Clinton, all this plan does is prove she’s completely out of touch with reality itself.
The plan is being reported in the news with such headlines as “Clinton proposes $350 billion college affordability plan.” In fact, most of the headlines advertise this $350 billion figure. That in and of itself is a huge red flag that signals two things: (1) It’s simply another iteration of the same tired progressive tax and spend “solution” to every problem and (2) it won’t work.
The hard truth on the student-loan crisis is that the problem is not being caused by a lack of money. It’s quite the opposite. A recent study by the New York Federal Reserve validated the long-held concerns of many economists and policy analysts alike when it found that “on average, for a $1 increase in the subsidized-loan cap, tuitions rose by as much as 65 cents.” In short, there is too much money available for the taking by colleges and universities because of generous government loans. This is driving up tuition prices. If the government just keeps increasing how much it is willing to lend students, where is the incentive for schools to control costs?
If the government just keeps increasing how much it is willing to lend students, where is the incentive for schools to control costs?
Universities are currently engaged in an amenities arms race to attract students and their loan dollars. One need not look any further for evidence of this than ESPN on a Saturday afternoon in the fall or a student-life brochure. Texas Tech University has a waterpark on campus for goodness’ sake, and LSU is racing to finish one as well. How is $350 billion more dollars for universities to waste a solution of any sort?
Mrs. Clinton’s preferred channels for delivering these funds are problematic as well. First, the plan calls for a cut in loan interest rates. Is this seriously something we’re willing to let politicians continue to get away with? Did we learn nothing from the housing crisis? Interest rates aren’t arbitrary figures without purpose — they are supposed to measure the risk of the borrower’s not being able to repay the lender. Judging by the severity of the present student-loan crisis and the number of defaulters, it’s safe to say interest rates are already too low.
Additionally, interest rates are the price of borrowing money. Let’s think back to Economics 101 and remember what happens to demand when prices go down. How do we solve the crisis of rampant student loan debt by making it easier and more attractive to get into? It doesn’t matter if the interest rate on $150,000 is zero percent when you still owe $150,000 and you’re unemployed. Students don’t need a lower interest rate. They need colleges to constrain spending. Further, they need high-paying jobs. Of course, the Clinton plan only makes the latter problem worse as well.
Under the Hillary’s plan, states will be encouraged to offer “no loan” tuition at four-year universities and free two-year community college through the promise of federal tax dollars. Of course, those tax dollars will have to come from somewhere. This is yet another drain on private business whose resources could otherwise be creating jobs for existing unemployed and underemployed students and graduates. Some will say this part of the plan helps students, but on net the economic drag remains the same, with the burden of education inflation simply shifted from students to their potential employers.
In short, the Clinton plan is an expensive gimmick to reach Millennials. It’s the typical solution we see from Democrats who hope that heaving enough of someone else’s money at a problem is enough to get elected and distract the public long enough to avoid atoning for the economic sins thereby committed.
The higher-education sector doesn’t need more money, regardless of where it is coming from; it needs a market and all of its associate forces. Potential students need to weigh the tradeoffs involved in higher-education decisions. They should have to investigate what degrees are in demand. They should have to decide if they really need a formal, four-plus-year degree for what they want to do. At present, young people face a job market that is saturated with these degrees, a glut created, in part, by high loan accessibility. Those students who make the decision to attend need to be empowered to demand spending accountability from competing institutions, not lured into more debt by lower interest rates and higher loan-caps. The only way to do this is to tighten the spigot. That involves the difficult but critically necessary decision to tell some students pursuing certain degrees that federal aid may not be available.
Further, this comes with the responsibility of demanding more career preparation from our primary and secondary schools. Turning K–12 to K–14 through two years of “free” community colleges is purely a cop out. There’s no excuse for the growing lack of career training and trade education available in American high schools. We’re wasting time preparing too many kids for liberal-arts educations they’ll either never receive or utilize, instead of gearing them up for jobs that don’t require formal degrees or the associated debt.
The first step in solving a problem is admitting you have one. Mike Rowe of Dirty Jobs fame said it best when he declared, “We’re lending money we don’t have, to kids who will never be able to pay it back, for jobs that no longer exist.” He’s absolutely right. We have too many young people saddled with debt they can’t pay off and degrees from resort-like universities that the economy can’t support. Those are bad investments and we have to be willing to say so. Hillary Clinton’s plan doesn’t do that, which is sort of ironic coming from the author of a book called Hard Choices.