First, what about those students who have already repaid their loans? By all means, government coffers should be reduced even further in favor of these people, too. Rights violations will thereby be reduced, when the statists have less money (However, those who repaid are not entirely innocent; they rendered money to Caesar, when with the benefit of hindsight, they may not have had to do).
Second, why did so many students have such a hard time repaying their debt to the government? Simple, all too many of them majored in grievance studies. This renders them unusually chatty baristas, but they don’t earn enough money to support their misspent college days.
What is the libertarian analysis of the student loan forgiveness policy now being implemented (subject to Supreme Court approval) by the Biden Administration?
Before we can offer any such examination, let us consider the following. The government first boosted tuition into the stratosphere by requiring all sorts of silly reports of universities, which necessitated the hiring of all types and varieties of academic bureaucrats. At one time, in the history of higher education, professors greatly outnumbered administrators; not any more. Then, in its largesse, this self-same institution lent money to students so as to be able to pay for the resulting enhanced tuition. Talk about creating the very problem you think you must solve.
Now, the proposal is to forgive these resulting student debts. Libertarianism, of course, is the viewpoint that it should be illegal to threaten, or engage in, initiatory violence. With that introduction, we are ready to try to apply this perspective to this issue of the day, student loan forgiveness.
One response to this challenge is to ask who is more worthy, on libertarian grounds, of being subsidized? That is, here is a booty seeking (or rent seeking, as the Public Choice theorists mischaracterize the matter) exercise, on behalf of supporters of this viewpoint. The two groups in contention for these benefits are these students who have not repaid their loans, and the general taxpayer, from whom additional taxes will be mulcted, if the program is executed.
How shall we determine an answer to that question? It must be on the basis of which group adheres more closely to libertarian principles, of course. Someone has to pay for the forgiveness program; either the lucky students if this goes through, or the average taxpayer, who previously paid these monies, and, if these debts are repaid, will presumably benefit, other things equal, via lower taxes than would otherwise have prevailed.
So, which group is more libertarian, and thus deserving of greater wealth? In my view, it is pretty much a tie. It is as if each assembly is worse than the other. On the one hand, the general electorate (apart from ballot box stuffing) is responsible for that senile old coot now occupying the White House. I need not say any more than that. This deviates markedly from libertarianism.
As the provost and I discussed the prospects of this new program, he smiled and said, “We hope this lottery passes. Then we can raise tuition by $3,000.”
When I interviewed for a teaching job at private college in Alabama more than twenty years ago, the recently elected governor had won partly on a platform in which the state would install a lottery system that would give students a $3,000 grant for college. As the provost and I discussed the prospects of this new program, he smiled and said, “We hope this lottery passes. Then we can raise tuition by $3,000.”
(The Alabama legislature, despite being controlled at the time by members of the governor’s party, failed to pass and implement the lottery.)
In the aftermath of President Joe Biden’s announcement that the government will forgive up to $20,000 of student loan debt for qualifying borrowers, the responses are following the political ideology of the commentators. For example, columnist Tressie McMillan Cottom of the New York Times declared it a “win,” although she then demanded even more loan forgiveness.
College Loans Have Helped Drive Up Higher Education Costs
While government officials are implying this is a one-time thing, we know that the political system will not put this to rest. After all, the forgiveness is being applied to student loans taken out in the past, yet college students continue to take out new loans for the coming academic year—and beyond. In fact, Biden’s loan forgiveness is going to have the same effect that my interviewer hoped would be the case if Alabama implemented a state lottery: higher prices for a college education.
That higher education costs have skyrocketed is a given. As Forbes explains:
For that matter, people who didn’t go to college at all, perhaps because they thought it was a bum deal or because they’d rather learn a skill, are forced to subsidize other people’s choices while getting nothing in return.
As you may have heard, Joe Biden pushed through a partial student loan forgiveness plan today.
This bailout of the wealthy carries the usual perils and moral hazard.
If you doubt that it’s a bailout of the wealthy, here is how student loan debt is presently distributed:
And the incentives here are all perverse. People who abstained from taking vacations or buying a new car or getting the latest gadgets or making a down payment so they could instead meet obligations they freely entered into are now made to look like chumps.
For that matter, people who didn’t go to college at all, perhaps because they thought it was a bum deal or because they’d rather learn a skill, are forced to subsidize other people’s choices while getting nothing in return.
Meanwhile, what will the trend in tuition costs be now? When there’s an institution standing by that has shown its willingness to bail out the wealthy, it is very hard to persuade people that it will not ever do so again. On the margin this will make more people (including more people who don’t so much as belong in a college parking lot) make the decision to enter the college industrial complex. Colleges have consistently raised tuition in light of various federal subsidies to students, and there’s no reason to expect that this one will be any different.
So, I have an action item for you.
(And note, incidentally, that it is an action item. We’d be wealthy people if we had a dime for every time someone in our movement simply complained about the problems with and costs of college. We have far fewer people actually doing something about it. Well, here are some people who have done something about it.)
If you or your children would like to avoid college but — and here’s the kicker — prosper anyway, I strongly urge you to check out Praxis, the college-alternative apprenticeship program that has placed countless young people in excellent jobs, building up nest eggs while their peers are all falling into debt.
So yes, your child can succeed without squandering a quarter million on some institution whose faculty can’t stand the sight of you.
I’ve been talking about and promoting Praxis for years, and quite a few young people who listen to the Tom Woods Show have gone through it and prospered with it. If you’d like to check it out, here’s how to watch their full presentation:http://www.tomwoods.com/praxis
When government claims that it’s going to make something (anything) “more affordable” or “more accessible” … watch out! Their attempt to tilt the tables in a certain direction always backfires. It ends up ultimately hurting those who they intended to help. There are countless examples, but on today’s program, we discuss how the government (and Fed) created the student loan mess.
As a member of Congress, Rep. Alexandria Ocasio-Cortezmakes a whopping $174,000 annually, meaning that she individually earns more than twice the average U.S. household’s income. Yet the progressive Democrat nonetheless thinks that working-class taxpayers should have to pay off her student loan debt.
That’s one of the main takeaways from Ocasio-Cortez’s latest speech on the House floor. In the congresswoman’s remarks, she issued yet another factually challenged and morally distorted plea for “student debt cancellation,” a progressive euphemism for having taxpayers pay off approximately $1.6 trillion in student loan debt. (The loans aren’t “canceled” magically but paid off by taxpayers. Congress can’t just make debts go away.)
Let’s stop advancing this narrative that student loan debt is for the privileged.
Do we really think a billionaire’s child is taking out student loans?
First-generation college students are twice as likely to report they are behind in making student loan payments. pic.twitter.com/KyGnrJCjNq — Rep. Alexandria Ocasio-Cortez (@RepAOC) December 3, 2021
This is nothing new, as student debt “cancellation” has been one of Ocasio-Cortez’s pet issues since the beginning of her political career. Yet an interesting twist in this speech is that Ocasio-Cortez uses herself as an example — and directly calls for taxpayers to pay off her financial obligations.
“I’m 32 years old now,” the congresswoman said. “I have over $17,000 in student loan debt, and I didn’t go to graduate school because I knew that getting another degree would drown me in debt that I would never be able to surpass. This is unacceptable.”
I’m sorry, what part of that is unacceptable, exactly?
Ocasio-Cortez’s $17,000 in student loan debt sounds like a lot, but it probably only involves a monthly student loan payment of $100-$200. It’s hard to know exactly what her payment is without being familiar with the specifics of her loans, but $100-$200/month is a reasonable estimate given that the average graduate owes $28,400 total, which equates to a $297 monthly payment.
And, as previously mentioned, the congresswoman earns almost $175,000 a year! Yet she bizarrely still thinks that working-class taxpayers should have to pay off her bills. What’s even more ironic and tone-deaf is that Ocasio-Cortez goes on in the speech to lament the (supposedly) “false narrative” that “student loan debt is for the privileged.”
She called this “narrative” a “ridiculous assertion” and asked, “Do we really think a billionaire’s child is taking out student loans?”
“Come on!” she exclaimed. “If you are taking on student loan debt, it’s because you are likely a middle or working-class person. Let’s get real, let’s cancel it.”
This part of Ocasio-Cortez’s speech is simply factually false and detached from reality. No, student loan debt isn’t held by the children of billionaires, a straw man claim no one ever made, but it is disproportionately held by a well-educated and thus higher-earning slice of the public.
This fact is not really in dispute among serious analysts.
One study found that “canceling” all student loan debt would give the top 20% of income earners six times more benefit than the bottom 20% of income earners. Even left-leaning think tanks such as the Urban Institute and the Brookings Institution have reached similar conclusions.
“Debt forgiveness plans would be regressive — providing the largest monetary benefits to those with the highest incomes,” an Urban Institute analysis concluded .
So, whether Ocasio-Cortez cares to acknowledge it or not, the regressive nature of student debt “cancellation” is simply reality.
Ironically, the congresswoman’s own story exemplifies the emptiness of her rhetoric. Ocasio-Cortez went from working as a bartender to serving in Congress, joining the ranks of America’s high earners and celebrities. Yet her plans for student debt cancellation would force workers across America to pay off Ocasio-Cortez’s relatively modest student debt obligations and the debt of countless millions of affluent, successful people like herself.
This is beyond a conflict of interest. It’s a scam bailout for Democratic legislators’ wealthy, well-educated constituents wrapped up in woke bubble wrap and progressive platitudes. Americans should look beyond AOC’s promises of relief for the needy and see this scam for what it is.
Because of the increased taxation in the US economy, the average American now works approximately 4 months out of the year to pay all of their taxes. That means 4 months out of the year I work for the federal government instead of working to pay off my student loans.
That’s how much the government will take out of my income this tax season. As a college graduate, I would have used this money to start tackling my over $50,000 of student debt.
But instead of using this money to pay off two of my student loans this year, the government gets to keep this tidy sum of my hard-earned money.
This is the sad truth for many college graduates, like myself, working full-time jobs and still finding it hard to manage basic daily needs like rent, food, gas, car insurance, health insurance, and the like. Many of us are left feeling like Rachel Green from Friends when we get our paychecks, saying: “who’s FICA? And why is he getting all my money?”
For student loan borrowers, an average of $12,000 a year saved would be transformative.
But instead, we are facing a true debt crisis for borrowers across all demographics and age groups making student debt the second highest consumer debt category in the US behind mortgage debt, according to Forbes. Total student loan debt amounted to $1.56 trillion last year alone.
Research also shows that “college graduates aged 35 and under with student loans now are spending nearly one-fifth (18 percent) of their current salaries on student loan payments and that 60 percent now expect to be paying off student loans into their 40s,” according to Citizens Bank.
But this tax season, I’m not asking for student loan forgiveness or a special government program to bail me out. I’m just asking to keep more of my hard-earned money.
Your Self-Interest Makes the World Better
I urge fellow student loan borrowers to imagine a world where you can keep all of your income and decide how to best spend your money. I would venture to guess that the majority of student borrowers would use this money to pay off their loans as fast as they can. Why? Because borrowers have an incentive to get out of debt.
Being debt free would be transformative for me! I would finally be able to move to my dream state, buy a house that I could design from scratch, help my parents pay off their mortgage, save for my future kids, donate more to my church, and accomplish the list of things I’ve written down for when I am debt free.
You see, when borrowers become debt free, their financial power changes drastically. They are more inclined to make major financial purchases like the ones I’ve shared.
Our rational self-interest to get out of debt frees up our ability to make major financial purchases which promote economic activity, benefiting the economy as a whole.
Adam Smith, the father of modern economics, discusses this idea of rational self-interest in his book, The Wealth of Nations, where he explains that the best economic benefit for all can be accomplished when individuals act on their self-interest.
Most of the economic activity we see around us is the result of self-interested behavior. The realtor selling my dream house acts on her own self-interest to build a salary to perhaps go on vacation. The workers cutting tile to fit in my new bathroom act on their own self-interest to build up savings and put a roof over their heads, the construction workers putting the house together act on their own self-interest to buy food for their families, and so on.
The beauty of rational self-interest is that it takes many self-interested people to work on one house, but as we all act on our self-interest, we inevitably serve one another and even more—produce economic activity that serves one another.
Your Spending Decisions Are More Rational Than Government’s
While using your income taxes to pay off your debt may be a rational and commendable spending decision, government’s spending decisions are oftentimes inefficient and ineffective.
Government’s track record of spending your taxpayer dollars is, well, horrid. GoBankingRates reports taxpayer dollars being used for things like studying monkey drool, examining how the world’s religions might react if humans make contact with aliens, having computers binge-watch hundreds of hours of television, proving that frat brothers like to party, putting fish on treadmills, and so much more. Governments’ poor spending habits have gotten so out of control that it’s put our nation in over $27 trillion dollars of debt.
So why do governments spending habits vary dramatically from individual spending habits?
Because incentives change when money comes out of your own pocket, versus the pockets of others. My favorite economics professor put it this way—“progress, efficiency and effectiveness don’t begin with someone else’s money.”
Your Liberty Is Being Taken Away
If we understand that individuals know better how to spend their own money than the government and that our spending decisions will help promote economic activity, why have we come to accept income taxes as normal?
Because of the increased taxation in the US economy, the average American now works approximately 4 months out of the year to pay all of their taxes. That means 4 months out of the year I work for the federal government instead of working to pay off my student loans.
If more college graduates were allowed to keep the dollars they earn, they would ultimately have the liberty to spend their money how they want —and get out of debt a whole lot faster.
But we need to keep more of our income to do this.
As we file our taxes this year, I encourage you to look at the amount of your money the government is claiming and ask yourself these two questions: what would you have done with this money? And does the government actually spend this money better than you can?
It’s not surprising that most of the arguments against widespread student loan forgiveness are coming from the political right, given that the idea itself originated from the 2020 presidential campaigns of Sens. Bernie Sanders and Elizabeth Warren. But perhaps the strongest reasons for yelling “Stop” should come from the left, because of the negative impact that such a step would cause to our most vulnerable families and communities.
For conservatives, across-theboard, no-strings-attached forgiveness of student loans is an obviously bad idea. It’s enormously expensive. The version sponsored by Warren and Senate Majority Leader Chuck Schumer to waive up to $50,000 in student loan debt per person would cost upwards of $1 trillion. It would cut against deepseated principles of personal responsibility and fairness, especially given that most college graduates — not to mention holders of professional degrees — are relatively affluent. And it would create expectations for more such windfalls in the future, encouraging future generations to over-borrow and encouraging university bureaucrats to overspend and hike tuitions further.
It’s unclear if the narrow Democratic Senate majority would approve anything like the Warren-Schumer plan, or even President Joe Biden’s more limited proposal to waive up to $10,000 per person. That’s why a coalition of more than 200 progressive groups is calling on Biden to take action unilaterally, by directing his Education Secretary to use discretion under the Higher Education Act to “minimize the harm to the next generation and help narrow the racial and gender wealth gaps.”
But progressives should curb their enthusiasm, because untargeted loan forgiveness could in fact harm the very people they purport to champion: the most disadvantaged Americans, including children growing up in poverty.
The reasons are two-fold. First, the immense cost would dry up federal resources that could otherwise be used for anti-poverty efforts. Imagine the good that $1 trillion could do if invested in the neediest Americans, rather than relatively well-off college-goers. For example, a National Academies committee estimates that we could reduce child poverty by 50% with an additional investment of $90-110 billion a year in the Earned Income Tax Credit, housing vouchers and SNAP benefits.
For $1 trillion, then, we could slash child poverty in half for an entire decade. Second, canceling student debt without asking for anything in return would wreak havoc with several forgiveness programs already on the books. These encourage teachers, doctors, nurses, lawyers and others to serve in high-need areas, or young Americans to opt for public service, including the military. Many of these programs need reforms, and Biden has promised to make them.
Targeted programs are smart ways to tackle social programs, provide relief to borrowers, and support the notion of mutual obligation. So let’s have more of them. Given the massive learning loss experienced by so many students during this awful pandemic, especially Black and Brown children and those growing up in poverty, our schools desperately need millions of tutors to help kids catch up. We also have critical needs in other areas. For example, some have suggested that the heroes who volunteer to be kidney donors could receive loan forgiveness.
The massive overhang of student loan debt is no joke. Millions are struggling to pay back what they borrowed for college. As tuition has skyrocketed and two punishing recessions have weighed down wages and employment, some college-goers face a real squeeze. But canceling debt outright, especially at massive scale, would represent an enormous lost opportunity. We can find ways to provide relief to the people who need it most while also working to solve some of America’s thorniest social problems. That is the sort of “jubilee” that would be worth celebrating.
Michael J. Petrilli is president of the Thomas B. Fordham Institute and a visiting fellow at the Hoover Institution.
Houston, Texas — A Houston man was arrested last Thursday over outstanding federal student loan debt left over from nearly three decades ago. Though he owed only $1,500, seven U.S. Marshals wearing combat gear and wielding automatic weapons aggressively arrested him — and authorities have said they will serve many more arrest warrants for outstanding educational bills in the near future.
“They grabbed me, they threw me down,“ 48-year-old Paul Aker told the New York Daily News on Tuesday.“Local PD is just standing there.“
Aker obtained the loan to attend Prairie View A&M University in 1987 and was unaware that he still owed the government money. He says he received no prior notification before the arrest was made, but on Thursday morning, saw a suspicious truck parked outside his home. Aker says when someone approached him, he ran into his residence. Later that morning, the U.S. Marshals approached, initially refusing to tell him why they were there. Read the rest of this entry »
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