Throwing Money at Student Debt

Big Spender Biden Makes Yet Another Huge Mistake

I hesitate to say how much Biden has used taxpayer money to bail out student loans, because that figure is going up like a rocket. As of the date of this posting, the Biden-Harris regime have thrown $7.7B of your money into the fire, and it covers debts from 160,500 potential voters, I mean, borrowers.

Biden calls this “debt cancellation.” But no debts are ever cancelled, as any economist knows. You can forgive a debt but all that means is that the lender absorbs it. If I borrow $20 from you and go to pay it back and you say, “Forget it,” that debt is forgiven. It’s not cancelled, you just took the loss.

Biden is basically using taxpayer money (without taxpayer permission, that is, Congressional approval) to pay off other people’s debts. Then, plagiarist that he is, he takes credit by claiming he has “cancelled student debt”! No he’s paid it off using other people’s money without their permission.

What Biden is doing is obviously illegal and certifiably unconstitutional (SCOTUS has ruled but Biden has disregarded, which is what dictators do right before they abolish the Supreme Court).

The student loans are legal agreements between the lender (the student) and a credit institution. That debt is a contract made between those two parties. Biden cannot simply swoop in and cancel the agreement. So he just picks up the tab with taxpayer money. For instance, let’s say you owe $500 on your credit card. I can probably figure out the legal maneuvers to step in and pay that $500 for you. The MasterCard people would allow it, and your debt is paid. It isn’t cancelled—I paid it. A third party paid it.

And that’s what Biden is doing except, being a crook and a con man, he’s using our money to play big spender. He’s using our money to swoop in and pay off a bunch of debts.

He’s running this scammy website called FederalStudentAid which makes the boisterous claim that these loans are being “forgiven.” They’re not being forgiven, they’re being transferred. To you and me.

Don’t be too alarmed. The plan has not paid out anything yet, as far as I can figure. Like a Democrat campaign speech, it’s about stuff that hasn’t actually happened. The bureaucrats in Washington are their own worst enemies in this regard, because there are some more hoops to jump through and we know if there’s one thing Biden can’t do well, it’s jump through a hoop. The bureaucracy demands a “regulatory period” that requires several weeks where the public is allowed to make comments. That hasn’t even started yet. Since people who make comments on these regulatory sites tend to be hyper-engaged, there should be some fireworks and dissent.

It’s thought that Biden is doing this to get votes, but I think Biden is doing this because he’s stupid. While Biden may be trying to pander to young voters with this move, the debt repayment options seem to favor borrowers who have carried a student loan debt for a long time, and they are not the young crowd. For instance, there is a whole category in Biden’s scam that addresses loans more than 20 years old—if you went to college 20 years ago, you’re not a kid. So while this boondoggle might win some votes, a lot of the potential beneficiaries of this program are older.

Of course, this Biden plan has more loopholes than one of those crocheted potholders you made as a kid, so it is hard to make clear statements as to what is paid to whom and why. According to the site and other reports, Biden wants to use our money to pay $10,000 against student loans for people who make under $125,000 a year. If you had a Pell Grant, which means you are likely a low-income borrower, you can get $20,000. Some loans are offered if a person winds up owing more today than they did originally because interest accrued and the debt was unpaid for a long time. These are likely not the economics majors.

Wharton Business School has looked at how Biden’s plan would work if we did it for the next 10 years. We can expect a $554B bill. And this plan targets only a small subset of the population. About 83% of Americans have no student loan debt.

Most people talking about the student loand debacle are missing the point.

First of all, universities are outlandishly expensive. The Poison Ivy League schools can cost $90,000 a year. Stanford University in California charges over $60,000 a year. Even lower-ranked schools can cost over $100,000 to get that piece of paper, and online schools are still going to run $30,000 or more to get a degree. You have to ask what that money goes for. Some of it is salaries; the average salary for a tenured professor at Harvard is $244,300 and that was in 2019. It’s hard to get data on professor salaries—the universities say it is because salary information is private. Yeah, and I bet it is pretty shocking, too.

• Most universities are run as nonprofit organizations, making them tax exempt. They don’t have to pay any taxes.

• Universities, particularly the famous ones, have a “nest egg” of money they call their endowment. The endowment is an account of tax-exempt money that the universities can spend on the institution—or they can invest them at will and take tax-free profits.

• Harvard’s endowment is $51B. Yale has $41B in endowment. Those are larger amounts than the gross domestic product of Iceland.

• In a survey conducted by U.S. News of 379 ranked national universities in the United States, the average endowment size is $1.6B. A national university is defined as one that conducts research and offers doctoral degrees as well as bachelor and master programs.

Isn’t this student loan forgiveness plan on par with the disastrous bailout of big banks during the Obama years? These universities are not poor. The first question that comes to mind is: why don’t they invest their endowment money and then use the proceeds to lower tuition? With a $51B endowment, couldn’t Harvard go tuition free? I am not saying this would not mean everyone could attend—Harvard would still maintain strict entrance requirements. But they don’t exactly need tuition if they have $51B in the bank.

• If they invested it, at just 5% return (remember no taxes), that would mean they’d make $2.6B in one year.

• If tuition cost $90,000 a year there (high estimate), that sum of $2.6B is enough to send 28,333 people to Harvard free. And we’re not talking about depleting the endowment, we’re talking about investing it and just skimming off the profits. After all, Harvard is set up as a “nonprofit” organization.

• If Harvard made strategic investments (and aren’t they supposed to be smart?) and those profits from that smart investing are tax exempt—they could put 28,333 people through Harvard for no tuition for one year. In 2022, Harvard had 25,226 enrolled students.

You can do the same math with the other colleges. Many of them are tax-exempt, have gigantic endowments, and could be set up to offer free or nearly-free tuition. And Harvard charges outrageously high tuition—many colleges charge just a fraction of what Harvard demands. It’s almost as if Harvard has entrance and financial requirements set up to keep out the riff-raff.

The cost of a college education has tripled in the past 58 years and outpaces even the inflation of Bidenomics. Tuition is on a path to the stratosphere, but no one knows why. Maybe a little of it is inflation. But look at Harvard. They have the buildings, they have fixed costs… why does their tuition keep increasing?

Biden’s misguided and illegal student loan plan is going to pour rocket fuel on this tuition increase. Tuition is already increasing faster than the price of bacon at the supermarket. But they’ll go up if student loan forgiveness becomes an option. Here’s why.

• The Biden-Harris administration has never worked this problem from the other end—instead of worrying about students unable to pay college-related debt, they should be asking this question. Why does college education cost so much?

• As far as I know, no university has been challenged on its rising tuition costs, although Liz Warren goes on X at least ten times a day to rail at food producers for price gouging or airlines for junk fees. The real price gougers are the universities and Democrats are strangely quiet about them. Why does it cost so much to go to these schools?

• If student debt becomes optional, that is, if student debt cancellation programs run rampant so that people know they can get their tuition covered no matter what or how many loans they take out … do you think this is going to make these super-endowed colleges get cheaper? No. They’re going to boost the price. My prediction is that if this crazy program isn’t stopped, tuition is going to double or triple in the next few years. Why not? Taxpayers are funding it.

• Why are universities tax exempt in the first place? Any organization that can sit on a nest egg of billions of bucks should be taxed. Remember when AOC wore her “tax the rich” dress to the Met Gala? Well, who is richer than Harvard or Yale or all the other big schools? Why are they allowed to make and keep so much tax-free money while we bail out the kids they are fleecing?

Many countries in Europe and elsewhere offer “free tuition.” This is a bit misunderstood by American liberals who are quite parochial in their views. Germany, for instance, has a world-class educational system with over 400 world-class universities in the country. These universities do not have separate entrance requirements. When a person wants to attend the university, they take an examination called the Abitur. It’s a comprehensive anxiety-inducing program that is taken over two years, right before the person is ready to graduate high school (German high school runs 2 years longer than American high school). It’s not one exam, it’s a series, and most of the tests last about 4 hours. It covers all sorts of things, from science to math to literature. It also works in the person’s grades in the last two years of high school. You get one shot at it. No mulligans.

Then Germany tallies up how many places at universities are available. Let’s just say for easy math, Germany has 100,000 slots to fill at the universities and there are 500,000 people who completed the Abitur that year. Germany then takes the top 100,000 performers on the Abitur and gives them those places (if they want them, and they usually do). The rest do not go to university. And it’s not as if a specific numeric score gets you into the university—they take the best scores each year.

The American system is more expensive, but like many things in America, vastly more compassionate and subject to abuse. We let each university figure out its own entrance requirements. It is quite possible in this country to get accepted to Harvard but get rejected from Yale, or vice versa. In Germany, it’s a binary: you’re in or you’re out. There are no second-tier universities or alternative pathways to get a degree. In our country, you can go to night school, online school, junior college, state schools, private schools, and in various combinations to get your degree. Some systems will waive course requirements in certain areas if you test out of them. You can take the SATs or other exams for college in the United States more than once, and if you are rejected from a university, you can apply again next semester. You can go to college right out of high school or years later. Not so in Germany.

So, yes, German universities are free but they’re also more systematized. Germany has made financial provisions to accommodate the students they accept—if they are going to take 100,000 students that year, they will cover the tuition costs. But they do not offer unlimited places and they do not offer places to those who do not meet a uniform and admittedly very high standard. In other words, “free” is kind of expensive.

The concept of “safety schools” does not exist in Germany.

So the idea of free tuition “like Europe does” just doesn’t fly. Most of us, liberals and conservatives, prefer a system that allows for multiple pathways to achieve same goal. Some of us take roundabout routes in our education. But that means we have to pay our own way.

The issue is not how do we offer more debt cancellation? The real question nobody is asking is why do our universities cost so much? Why are they tax exempt? And aren’t we enabling them to just keep raising tuitions by demanding disinterested third parties (taxpayers) pick up the slack?