There is a well-known Aesop Fable entitled “The Ant and the Grasshopper.”
The Ant works all summer preparing for winter while the Grasshopper squanders its time in non-productive pursuits. When winter comes the hungry Grasshopper comes to the Ant begging for food but is refused. The moral to the story is that provident behavior consisting of hard work and planning for the future is rewarded while failure to do this will have dire consequences.
Today, instead of Aesop Fables, we have Government Fables. One of these Government Fables, College Debt Forgiveness, closely parallels the Ant and the Grasshopper but with a perverted moral. Here, the Grasshopper’s irresponsible prodigal behavior with college loans is rewarded while the Ant’s responsible behavior (avoiding or paying off loans) is not. In addition, the Ant is shown to be a “foolish naïve chump” for doing the right thing.
Loans are a mainstay of both business and life. There are home loans, car loans, and credit card loans. Because of their ubiquitous nature, the concept and expectations of loans are easy to understand. Loans benefit both the borrower and the lender. Without having sufficient cash on hand, loans allow borrowers to have cars, houses and a college education. The lender is rewarded in this transaction by having the borrower pay back the original principal plus interest or a fee. It is a given expectation that the borrower will make good on the terms of the loan and pay back the entire loan.
We are now being told by a number of politicians (Senator Elizabeth Warren in particular) that college loans “are different” and have become a serious national problem. There are 45 million Americans who have student loan debt that averages $33,000. (Translation: Of the 255 million Americans over the age of 18, there are 210 million (82%) who did not take out any student loans or, if they did, the loans were paid back in full.) For the 18 percent of the population with outstanding student loans, Congress and the president are proposing a “one-time” student loan forgiveness program of between $10,000 and $50,000 to address this serious national problem.
We are told that this forgiveness program will “reduce the wealth gap,” “stimulate the economy,” “help young families starting out,” and “help people save for retirement.” This potential trillion-dollar “forgiveness” solution will target members of the most educated sector of the country.
Being college educated, this group should also have a bright future. For those with a bachelor’s degree (32% of the population), the average income is $65,000 compared to a high school graduate’s income of $39,000. The unemployment rate of college graduates is half that of high school graduates. So, why then are student loans such an intractable national problem? Something must be missing in the discussion.
In fact, there are three things missing: 1. Did the student finish the degree? 2. What did the student major in: Interdisciplinary Studies, Theater, or Art History, or Business, Engineering, or Nursing? 3. What type of institution was attended? Community College, 4-Year State School, or a Private School (for example, Boston University: $75,000/year tuition & on-campus housing x 4 years = $300,000)?
Yes, it’s true that college loans are different from other types of loans. For example, someone who qualifies for a car loan for a KIA Sorento ($26,000) would probably not qualify for a Ferrari ($260,000). However, to even suggest that some people might not be able to pay back their student loans based on their choice of a low paying major and/or an expensive college is verboten. According to the Brookings Institute, 6% of the college loans are for over $100,000. This accounts for nearly a third of all student loan debt. Twenty percent of the borrowers owe more than $50,000.
The forgiving of student loan debt by the federal government sets a very bad precedent and raises a number of awkward questions:
- Will credit card debt relief be forthcoming as well? Being told by members of Congress that “College Loan Debt” is a national crisis but “Credit Card Debt” is not will be a hard sell. Nearly half of all American families have credit card debt averaging over $6,000.
- Will this really be just a “one-time” gift? Doubtful! The students who follow in the years to come will borrow with the understanding that their $10,000 relief will be there as well. After all, it’s only fair. This situation highlights Planer's Rule (Similar to Murphy’s Law): An exception granted becomes a right expected the next time it is requested.
- Is this fair to those who never took out any loans? No!
- Is this fair to those who paid off their student loans? No!
- Is this fair to the parents who used their family savings to keep their child out of debt? No!
- Will graduates of Harvard’s Law School, where Senator Warren taught, be receiving the student loan debt relief? Yes!
- Will this really help “reduce the wealth gap”? No! How could it? It will only benefit the college educated.
- Will this forgiveness program “stimulate the economy”, “give young families a head start” and “help people save for retirement”? No! These statements are absurd. They imply that there will be a $10,000 refund suddenly sitting on the kitchen table ready to do economic magic: to buy TVs, furniture, cars and provide a down payment on a new home. There is no cash going to these people!!!! The American taxpayer is being forced to eat their college loan debt. How does that stimulate the economy?
- Will the $450 billion in relief be enough ($10,000 for each borrower)? The answer to this question is easy. No! This would eliminate the debt of only 15 million of the 45 million borrowers. This leaves 30 million borrowers who owe more than $10,000.
So, instead of having just 210 million angry Americans, we need to add in another 30 million (those who feel they were short-changed). The new total number of Americans who will be enraged with the proposed $10,000 college loan forgiveness program will be 240 million (94% of the adult population over 18). Sounds like a political winner for the Democrats.