Steve Chapman
The government normally doesn't care
whether you or I accumulate large bills for
home improvement, a new car or exotic
vacations. But Barack Obama feels no
hesitation in concluding that the cost of
higher education has placed "too big a debt
load on too many young people." Therefore,
something must be done.
The problem with Obama's analysis is
defining "too big." Compared to what? Most
of these young people, often in conjunction
with their parents, have voluntarily
shouldered student loans to pursue their
studies. If they thought the burden was too
heavy, they didn't have to take it on.
They have done so not because they are
careless wastrels, but because they place an
accurate value on higher education. They
comprehend that it is very likely to pay for
itself and that forgoing it would be the most
costly option of all.
The president says the debt burden makes it
hard for these people "to start a family, buy a
home, launch a business or save for
retirement." But they would most likely have
even less money for those purposes had they
avoided borrowing by avoiding college.
That's because people with bachelor's degrees
make more money than people without --
nearly twice as much, on average. Not only
that, but the value of higher education has
risen substantially. Over the past 50 years,
the real value of a degree has tripled.
Some perspective is in order. Though some
students acquire huge debts, two-thirds
graduate owing $10,000 or less, and only 2
percent owe more than $50,000. Not all of the
latter need to worry. A newly minted doctor,
lawyer or MBA from a good school can expect
an income more than adequate to the need.
Obama wants to let some five million
borrowers cap their monthly repayments at
10 percent of their income and, after 20
years, be relieved of any remaining balance.
What would the change cost? "We'll figure
that out the back end," said Education
Secretary Arne Duncan, in one of the more
alarming budget projections ever issued.
The administration blames the problem on
the growing cost of higher education. It has a
point. College costs have risen much faster
than other prices. In 1973, annual resident
tuition at the University of Illinois at Urbana-
Champaign was $496 -- which is $2,566 in
today's money. For the 2013-2014 academic
year, the sticker price for U of I freshmen was
$11,834 -- four times more, in real terms,
than their parents might have paid.
But thinking that more federal aid will make
college affordable is like believing that a dog
can catch its tail if it goes faster. One reason
colleges charge so much more today is that
federal aid makes it easier for students to
cover the bill. The more the government does
the less reason students have to demand cost
control, and the higher tuition will climb.
Forgiving more debts after 20 years (10 for
those in "public service" jobs), as Obama
proposes, adds to the expense inflicted on
taxpayers without doing borrowers much
good in the meantime.
Among those taxed to provide these benefits
are people who earn less than college
graduates because they didn't go to college. If
it seems unfair for people to shoulder big
loans to finance their degrees, it's even more
unfair for people without degrees to share the
sacrifice.
A better idea than Obama's is to make
repayments simpler and more efficient by
shifting to paycheck deductions, like Social
Security taxes, at a rate chosen by the
borrower, for up to 25 years. This gives
borrowers more flexibility in the short run
and the long run. University of Michigan
professors Susan Dynarski and Daniel
Kreisman, who devised the plan, figure it
would cost taxpayers no more than the
current program and might cost less.
The other thing that would really help is a
stronger economy, which would put more
debt-ridden grads into the jobs they prepared
for. Any loan terms are tough for the
unemployed and underemployed.
But the rising cost of college mainly stems
from the fact that people are willing to pay a
lot because it's so valuable, and it won't stop
going up until it declines in value or they
become more cost-conscious.
Obama says he really cares about the issue
because he and his wife paid off their loans
just 10 years ago. Obviously he wishes their
education had cost less. But note: He doesn't
say it wasn't worth it.
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