The student loan crisis will end, “not with a bang but with a whimper.” After the presidential election, student debt will remain an embarrassing and thorny issue. Both parties have DNA at this crime scene. Neither party is in control. The prime mover in all of this is the “Nanny Campus” and a captured Education Department. Universities are the engine room of this education industrial-complex.
Once accepted to university, FAFSA makes few assessments of the student’s ability to carry the loan forward all the way to paying it off. Most students do not comprehend the costs of signing up for a $30,000 debt to complete a degree in four to six years. Students cannot comprehend how long twenty to twenty-five years this debt plus interest will take. Loan payment terms may exceed the borrower’s age. The interaction of the ED, banks, and students was parodied in an earlier Mises article.
The Biden-Harris administration pushed student loan forgiveness to a SAVE program. New payment plans provide transfer of unpaid loans to this new plan to cure the receivable. Curing uses the federal fresh start program restarts the delinquency clock, suspends reporting to credit agencies, and makes ED statistics on default loans shrink. SAVE would limit the amount a debtor will pay depending on income. The Supreme Court blocked this. The score on passing forgiveness (write-off) plans is: Biden-Harris: 0; Scotus: 3.
The taxpayer-as-benefactor does not approve or underwrite the student loans for risk. In finance, the benefactor (taxpayer) relies on contracts and the authority of the trustee to protect the money reserved for a specific loan use. Application of the contract’s provision and collection is the responsibility of the trustee (ED) loan holder.
The student loan crisis will not end in the near term. Many loans do not reach maturity for 20 years. No new plan from the current administration or legislation from Congress will address loans due or the wasted dollars. Society’s expected payback of funds will not happen. The measurable return from improvement in the quality of human capital, as promised, is unlikely.
ED is willingly co-opted with the university system, the energy source of the educational industrial-complex. The complex expresses shock that education can have its value monetized and made a commodity. Their goal is catering to the student, not having responsibility to the state or taxpayer. The educational industrial-complex is neither a fiduciary nor an underwriter of loans. It is free to focus on gathering more students as ATMs. Aided in part by state policies, universities accept 10 percent of every high school’s seniors.
When a simple AI question was asked of Bing, “What is the value of a college education?” there were seven benefits listed. Leading the benefits gained were the opportunity to earn higher wages, job security, and advancement. These benefits corresponded to the public’s expectation. The remaining six benefits are not related to wages. The benefits offered are like a syllabus of a program to help college students become adults. These Nanny Campus improvement promises are repeated often:
- Learn skills like communication, presentation, problem-solving, and teamwork;
- Learn to manage your time and money (?), and gain confidence;
- Gain Independence: University can help you become more independent as you learn to manage your learning and finances. (italics mine);
- Personal achievement, a life-changing experience giving a sense of achievement;
- Extracurricular activities that can help you try new things, meet new people, and further your interests;
- Exposure to diversity, building empathy and tolerance for people from diverse cultures;
- Work experience or placement opportunities as part of your course
These benefits are termed “social ROI”—a fuzzy attempt to justify soft, possible individual gains as society’s good. There is no acceptable exchange of currency from private “social ROI” that translates to a dollar benefit to satisfy a loan expressed in dollars. (Ironically, while some scoff at the notion that the “college experience” cannot be commodified and reduced to a dollar amount, students, parents, and taxpayers certainly pay a high dollar amount for these supposed intangible benefits).
The ED function was calved from the iceberg of Health Education and Welfare in 1980. The newly-formed department had the staff, leadership, and DNA of its parent—a human services function. HHS goals were assisting individual clients with their needs for service, not making loans, underwriting applicants, or collecting payments.
The goal of universities is increased enrollment. Meritocratic standards such as SAT/ACT scores or high school GPAs are obstacles to increased college admissions. Courses of study and capital projects may yield to student wishes, not future needs of society. The underlying credo sees all degrees as equally valuable. Considering college as an engine to develop human capital is criticized as materialistic.
Mismanaged as a socio-political—not a financial—function, politics influences the ED’s every activity. Specialty loan amendments are catnip to Congress. Most occupational write-offs—such as teachers in urban areas or lawyers in remote Ohio—directly intrudes into reservation wages offered by the job market. This is the use of educational revenue as an off-the-book wage supplement.
Universities soften technical courses and offer summer camp experiences such as waterparks, with indoor river tours, and multi-story water slides. Hungry? Seventy percent of college students use food delivery services, the average being four times a week. Speech free zones and campus petting zoos relieve stress, even milk and cookies served after the Trump presidential win.
Facing the enrollment cliff of fewer students leaving high school, smaller private universities are closing. Mid-sized colleges are adopting collaborative degrees and increasing marketing campaigns. Large universities are eliminating low attendance classes or granting credit hours for life experience.
Student Loan Portfolio: A True “Junk” Bond
An August 2024 WalletHub survey reported 61 percent of students regret taking out student loan dollars. Seven in ten college students in this survey said they were financially overwhelmed. Two in 10 said they have no plan to pay their student loan debt after college. Statista reported in August that forty percent of graduates with a BA, aged 22 to 27, are working in jobs that did not require a degree. In a 2023 Wall Street Journal poll, 42 percent of college graduates said that getting a degree wasn’t worth the cost. The Venn diagram of these statistics presents a picture of a very ugly baby.
Education Department data shows that, as of 2023, a total of 6.8 million federal student loan borrowers had loans in default. This represents 15 percent of the total number of borrowers. These borrowers are teased by the administration’s reporting of new forgiveness plans. Monthly press releases announce write-offs loans for small borrower segments. Covid suspension gave this group a taste of freedom when payments were suspended for 42 months. Forty-six percent are not currently paying their loans due to forbearance, default, or they are past due. Another fourteen percent, who were on an income-dependent plan did not even earn enough wages to pay the loans. All loans also allow wage garnishment.
Was the Nanny Campus’ promotion of a college degree a contract offer accepted by students? The bill for student loans and escalating costs belongs to the state university system. Governed by regents with staggered terms and appointed by the governor, there is added distance between the taxpayer’s expectation and the deliverable. The legislators may control the budget, but not the university’s direction. A collision is imminent when the ED, the Nanny Campus, and students are held responsible for this $1.7 trillion dollar bill of their making. In the words of the 20th century’s most revered epistemologist, Pogo, “We have met the enemy and he is us.”
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