Here’s another boondoggle brought to you by our government: post graduate student welfare as loan forgiveness.
Basically, public debt and/or taxpayers are being used to provide people going into professional and profitable careers a massive subsidy. Perhaps more importantly, the government sustains the college tuition bubble a bit longer by providing this subsidy.
When you hear candidates try to come up with a way to give out free community college, you might get the impression that we are only trying to help those who are the worst off. That is a false impression. Student welfare is given to graduate students.
According to the Wall Street Journal, “postgraduate borrowers … now account for roughly 40% of all student debt but represent just 14% of students in higher education.”
And much of that debt never gets paid back. The students never plan to pay it back. They go to graduate school because they know they won’t have to pay it back.
Here is the anecdote the Wall Street Journal uses to begin their scary article, “Grad-School Loan Binge Fans Debt Worries.” The highlights are mine.
Virginia Murphy borrowed a small fortune to attend law school and pursue her dream of becoming a public defender. Now the Florida resident is among an expanding breed of American borrower: those who owe at least $100,000 in student debt but have no expectation of paying it back.
Ms. Murphy pays just $330 a month—less than the interest on her $256,000 balance—under a federal income-based repayment program that has become one of the nation’s fastest-growing entitlements. She plans to use another federal program to have her balance forgiven in about seven years, a sum set to swell by then to $300,000.
The promise of forgiveness is “the only reason I would have ever considered” amassing so much debt to attend Tulane University Law School, says Ms. Murphy, 45 years old. She earns $56,500 a year as an assistant public defender in West Palm Beach.
Before you get mad at Murphy, ask yourself how a school can stay afloat economically if it charges over a quarter of a million dollars to train someone for a job that pays less than $60,000 annually. It can’t. It would never be able to charge that much unless it was getting a massive subsidy. All these debt forgiveness programs allow the schools to keep jacking up the price of tuition year after year.
Propelling the surge in grad-school debt is a welter of federal programs that make it easy for students to borrow large amounts, then to have substantial chunks of those debts eventually forgiven. Critics of the system say it makes it easier for graduate schools to raise tuition, and for some high-earning graduates such as doctors to escape debts they can afford to repay.
In what world is a statement of basic mathematics and economics merely the opinion of “some critics.” The system is something that Bernie Madoff would dream up. It is an unsustainable process for taking money away from working people and giving it to big businesses known as Universities and in some cases to people who are going to make a boatload of money.
I don’t think Veronica Murphy sounds like one of the people who is making a boatload of money (unless changing her job after the debt is forgiven is part of her plan). So what would have happened if the loan forgiveness programs did not exist?
She would not have been able to afford the schooling. So what would have happened? There are several possibilities:
- Institutions that need public defenders would have needed to pay them more so people could afford to get the education they needed to do the job.
- Universities and colleges would have been forced to reduce tuition rates in order to attract students who wanted to prepare to be public defenders.
- Alternative Educational requirements would be developed so that the position could be filled by capable people through self-study and apprenticeship without requiring years in grad school.
Economic reality would force some combination of these innovations to be used. But the job of the government is to protect those who are important from economic reality by exploiting the people who are not important.
The federal student-loan programs are designed to generate revenue for taxpayers, and they do. But surging enrollment in the debt-forgiveness programs recently prompted the government to increase by $22 billion its estimate of the long-term costs of the provisions. And a recent move to expand the most generous repayment program to millions more borrowers will cost an estimated $15.3 billion.
Critics say offering unlimited loans to students, with the prospect of forgiveness, creates a moral hazard by allowing borrowers to amass debts they have little hope or intention of repaying, all while enriching institutions and leaving taxpayers to pick up the tab.
Once again, what “critics say” is simply the truth about what is going on.