Politics & Policy

A Remarkably Awful Student-Debt Plan

(Michelle Marsan/Dreamstime)

The view from Mrs. Clinton’s mansion in Chappaqua is an unusual one. How else to explain her surveying the uneven American economic landscape and saying: “You know who really has problems in this country? Families with six-figure incomes and kids at Stanford.”

Hillary Rodham Clinton, fresh from vanquishing Senator Bernie Sanders, has, rather than making the traditional post-primary turn to the middle, tacked to the left, and hard, with a pandering proffer of giveaways to college students and recent graduates that is as ambitious as it is stupid, ambition and stupidity being a particularly potent and popular combination in this year’s presidential politics. Its main features are a three-month loan-repayment holiday for student loans, new subsidies for student debtors, and free — “free” — college educations for children of American families making up to $125,000 a year and attending state schools.

The rate of default on student loans is quite high, owing to several factors. The near-term one is the lackluster job market; the long-term problem is that too many Americans borrow too much money to attend institutions that charge too much in tuition in exchange for education that is of limited professional and intellectual value. Mrs. Clinton proposes to make that problem worse by artificially lowering interest rates on federal student loans (the federal government now has a monopoly on those, thanks to the innovations of Barack Obama, one that is tens of billions of dollars upside-down on its finances), thereby encouraging students to borrow more and university administrations to raise tuition in order to soak up the cheap new money those low rates would make available.

Implicit in the argument about interest rates on student loans is the question of what those rates really should be, and the answer is: No one knows. The federal government does essentially no underwriting on its undergraduate lending — no consideration of creditworthiness, ability and inclination to repay the debt, etc. There are, essentially, no lending standards in the program. You remember lending standards: Everybody was talking about them for about five minutes after the subprime-mortgage market collapsed. That was no fun. But fear not: The student loans you federal taxpayers are on the hook for add up to only a measly . . . $1.2 trillion.

Mrs. Clinton’s promise of ‘free’ higher education at state schools would certainly prove to be a gigantic waste of money and a nightmare of inefficiency and corruption.

At last count, about 27 percent of U.S. student loans were in default, which is about what you’d expect for a program with, to repeat, essentially no lending standards. But even so, the great majority of student borrowers are repaying their loans, and Mrs. Clinton’s repayment holiday would accomplish nothing for them besides putting them another three months away from financial freedom. So why make the moratorium universal? If the federal government wants to offer a repayment holiday for delinquent borrowers to entice them to get back on the program, with some concessions in terms of interest rates or penalties — just as tax collectors offer the occasional Come-to-Jesus amnesty period — that might be a defensible idea. Better to get some repayment than none, and better for the borrowers to get back on sounder financial footing than to have bad debts hanging over them every night when they try to go to sleep. It may be that Mrs. Clinton’s open invitation is simply a way to camouflage aid to the delinquent borrowers in order to forestall resentment among those who “played by the rules,” as someone is fond of saying, and met their loan obligations, who as conscientious borrowers and current or future taxpayers are taking a double whammy to subsidize their deadbeat friends and neighbors. Mrs. Clinton says the moratorium is necessary for students to take advantage of certain refinancing opportunities, such as the income-based payment schedule. But those programs have existed for years, and there is nothing stopping students from taking advantage of them right now, or six months ago, or years ago.

Our progressive friends should appreciate just how regressive this redistribution of wealth is. Ordinary undergraduate loans are capped at $31,000, but Grad-Plus loans (which do include some very, very modest lending standards) are in effect open-ended, allowing students to borrow up to the “cost of attendance.” A student who made the mistake of listening to his high-school guidance counselor and enrolling in a college program that did not suit his needs, or a student who attended a semester or two before dropping out, might see a few bucks’ worth of savings a month under Mrs. Clinton’s plan. And those students, who are extraordinarily ill-served by our current higher-education practices, are the ones who are likely to be laboring under real financial burdens when it comes to their loans. Caitlyn doing her MFA at Pratt or Abhishesh getting his MBA from Stanford (cost of attendance just under $200,000) are probably more upwardly mobile, likely to earn much more money and to have more stable employment — and they receive much, much larger subsidies under the Clinton plan.

But all those lending questions will be moot if we make college free. (“Free.”)

#share#There is no such thing as free college, any more than there is free health care. But if you want to get a good look at what “free” education under federal management looks like, consider the District of Columbia’s federally overseen K–12 system, which reliably produces educational outcomes that are among the worst in the country. Don’t take our word for it: Take Mrs. Clinton’s word, and her husband’s, and that of Barack and Michelle Obama, too. The Clintons knew better than to send their own precious snowflake to those horrifying schools, and so did the Obamas: “Free” public garbage for you, Sidwell Friends for them. You think Malia Obama is going to one of those soon-to-be-“free” public universities? No, she’s going to Harvard.

Mrs. Clinton’s promise of “free” higher education at state schools would certainly prove to be a gigantic waste of money and a nightmare of inefficiency and corruption: That’s what federal programs are. But it is worse than that. The current model of federal support for higher education consists of supporting students and families, who then choose among the institutions of higher learning competing for them and the revenue that accompanies them. Take tuition out of the picture, and you no longer have anything that resembles a market. Mrs. Clinton proposes a “federal-state partnership” to end tuition; what that means in reality — what it always means — is the federal government stepping in as a director, funder, and, eventually, manager. It represents the beginning of what would amount to a federal takeover of the state-university system.

The people with the most pressing needs don’t worry about paying for their children’s law school, because their children do not finish high school.

When health-care reform was proposed, Republicans made the mistake of doing very little other than insisting that the American health-care system is the world’s greatest, and that it ought not be mucked with. Even if that had been true (and it wasn’t, at least not entirely), it was still a poor policy prescription that failed to assuage the stress and uncertainty associated with Americans’ medical expenses. Bearing that error in mind, it is worth considering that American higher education really is the world’s best, without question. It is that for many reasons, one of which is the fact that there are many different kinds of colleges and universities, public and private, spread across many states and jurisdictions, which brings about real (if necessarily imperfect) competition and the benefits generally associated with markets and consumer choice. The high schools in Cleveland and Detroit are government monopolies under Democratic management. They are less highly regarded than the Cal State system or the Ohio State University, to say the least.

The people and families most in need of direct assistance and social support are not $125,000-a-year households with children in law school. Those Americans will have their ups and downs in life, to be sure, but most of them will be just fine. The people with the most pressing needs don’t worry about paying for their children’s law school, because their children do not finish high school. What’s needed most isn’t a federally subsidized financial comforter for the well-to-do and soon-to-be-well-to-do young people in Cambridge, Austin, or Berkeley, but a meaningful and direct path from secondary education to gainful employment, and the dignity and security of economic self-sufficiency, for Americans not bound for elite occupations requiring expensive graduate degrees. But Mrs. Clinton apparently has calculated that those hated Bernie Bros are in fact much more likely to knock on doors and write her checks than are poor people with at-risk children in Chicago. Hence, a promise of more welfare for the well-off.

That will be expensive, of course, but the real cost would be the ruination of the American system of higher education, one of our most important national assets, along with the creation of perverse economic incentives that will result in more young people taking on more unnecessary debt, the real cost of which will never be reflected in the federal ledger because the actual financial risks born by U.S. taxpayers responsible for those loans is never priced. Treating that lending as risk-free for the purposes of government accounting makes these loans look like a good investment — as though we were actually making money on them — but that is simply smoke-and-mirrors bookkeeping.

The presumptive Republican nominee might make some political hay out of that, if anybody could pronounce the words “Trump” and “university” together without wincing.

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