Debunking Charlie Kirk (and PragerU) on Student Loans

Kirk is the star of a 5-minute PragerU video titled “Game of Loans” posted Nov. 9, 2015 to Prager’s YouTube channel. It can be found here.

The basic premise is colleges conspire with politicians to “fool” students into giving them more money through loans and tuition. The basic claim is this: rising tuition means schools can give out more student loans and therefore don’t have an incentive to lower tuition.

According to Kirk, it might be OK for engineering majors to take this deal because they will get a high-paying job. But the “social science” major should not because they are not being prepared for the workforce and a high-paying job. [Ironically, this from Kirk is a reason to switch majors, not an argument about student loans.] And these majors are not being prepared because “today’s higher education is about teaching you what a terrible country America is, social activism… and binge drinking.” [I won’t even bother with this stupid claim, though Kirk conflates all majors with the social science ones, implying the engineering student is also getting the anti-American message.]

I’ll get to the facts Kirk cites. But it is worth analyzing the basic comparison he makes — saying the student loan “game” is like HBO’s “Game of Thrones.”

Here is how Kirk describes the show: “Seven kingdoms vying for power, plots within plots, watch your back or lose your head. It’s great.”

It’s the “watch your back” that is most interesting. It of course allows Kirk to set up the “fool” claim about colleges and students. It also though pits colleges against students. Despite complaints about parking, overstuffed dorms, and not enough Biology labs, students generally don’t see their universities as pitted against their success. They might see professors that way, but institutions are different.

And further, the wider GOP “war” on college has not taken this path, either. To the ones fighting this war, college is inefficient, overpriced, bloated, and those may affect students — their graduation times, their finances, their emotions. But it has never been a direct conspiracy (colleges “in league with” politicians) like Kirk (and PragerU) presents.

The question is, of course, why does Kirk go to this extreme. It helps him. It continues the pattern of fooled/enlightened Kirk started with his first foray into politics. See my fact check here. And it positions Kirk (and PragerU) as the Enlightenment.

And of course demonizes everyone who works, runs, or funds a college. Kirk gets students as followers at the expense of one of the most central institutions of democracy, higher education.

But sadly for Kirk, the claims and premises are completely bogus.

Let me work through the steps.

1. “The government is happy to give [more student loans to] you since they collect the interest.”

First, as Kirk well knows but doesn’t say, there are two sources for student loans: the federal government and private lenders. The latter generally charge a higher interest rate and make students pay that interest while in school. The former does not because most federal loans are subsidized by the federal government (i.e. it allots money both for the loan and to pay the interest on the loan while you are in college). Interest rates are higher and more varied in private loans. And of course, most private loans are given out based on economic standing (i.e. high credit score or ability to pay back) whereas most federal program loans are given out based on the economic poverty of students and their future job is not considered.

Because these and other differences, all student aid groups suggest maxing out federal funds available first. This is not because the federal government is in cahoots with colleges. It’s because the private option is more expensive. [Private student loans also have a host of other problems. See here.]

Other facts stand against Kirk’s conspiracy. If the federal government wanted to make even money from student loans, it would stop backing them against default, stop promising a higher interest rate to the banks (the rates students pay are lower), and stop paying additional fees to banks for administration and collection of student loans. These three things it started doing in 1965. This system created great wealth for banks and so in 2010 the government cut out the last action, giving out loans directly.

And so these and other reasons is why only 6% of all undergraduates took out private loans in 2011–12.

On the question of federal student loan interest payments as profit, there is some debate. Democratic Senator Elizabeth Warren has been the most outspoken on this issue, claiming in 2015 that the federal government is on target “to produce $66 billion in profits for the United States government.”

As Politifact notes, “in making the $66 billion profit claim, Warren relies on one gold-standard source — the federal Government Accountability Office. But another gold-standard source — the Congressional Budget Office — says the accounting method used to produce that figure is flawed.”

Here is a good analysis of the two accounting methods. And here is a good explainer of the better method. Here is a good fact-check of the interest issue.

Here is the best argument against the claim that the government makes a profit, according to the director of the Federal Education Budget Project at the New America Foundation, a non-partisan think tank: “Were the government truly making a profit on student loans, there would be room for private lenders to enter and offer students lower interest rates. However, over 90% of student loans are originated by the federal government, showing that the interest rates it offers do not adequately compensate taxpayers for the risk-adjusted cost of the loans.”

2. Politicians vying for the student vote are colluding with colleges.

Yes, certainly federal representatives set the federal budget and therefore the amount of federal money available for student loans. And the federal government has spent more on student loans over last 20 years, but that has fluctuated in recent years, according to Pew research. For example, the federal government disbursed $112 billion in student loans in 2012 and $125.7 billion in 2016.

But Kirk’s premise is based on the idea that colleges are deeply dependent on these loans as tuition for their budgets. That is not true, according to Pew.

Yes, tuition has spiked. Kirk references a Bloomberg News reports that argues “since 1978 the cost of a college education has gone up by over 1000% percent.” This is from a 2012 “Chart of the Day.” Politifact says this is accurate.

On the other hand, in my state of Georgia, over the past five years, tuition increases have averaged about 2.2 percent. And a recent analysis by the Federal Reserve Bank of Cleveland found that tuition revenue per student at public four-year universities rose by $5,700 between 1987 and 2013, to $9,300. At private colleges, it climbed about $12,000 to almost $20,000 per student, according to The Washington Post.

Next, the claim that colleges have no “incentive” to cut costs fundamentally misunderstands how tuition works. [As an aside, Kirk doesn’t differentiate between state and federal governments. The federal government has nothing to do with college tuition rates. So its representatives would have no reason to conspire with the school. I suppose those federal reps could be conspire with the state reps. A lot of conspiring there.]

3. Colleges have no incentive to cut tuition.

Tuition levels are set by individual colleges and state boards overseeing multiple schools of different sizes and needs. And as everyone knows, there are multiple levels of payers. And tuition rates differ from state to state and within states. And of course private versus public. I’ll stick to the public.

On who sets the tuition, According to the Education Commission of the States, two state legislatures set tuition (Florida and Louisiana), 27 state higher ed commission or regents do, and 38 campus boards do. In Georgia, where I work, the state Board of Regents set tuition rates for all schools, but you can bet that is in consultation with the schools.

Setting the rate is a complex process described well here. Tuition rises can be attributed to less state support, high enrollment,and an individual institution’s cost structure, according to the National Conference of State Legislatures.

It’s the first point that helps debunk Kirk. Kirk suggests those state reps are conspiring with the colleges to keep tuition high by cutting the schools’ budget, forcing the schools to ask for more from the students. And the cuts de-value the school’s brand. And neither sees the “profit” from student loans. So the incentive for the conspirators at the state level is absent.

But what would the conspirators at the college level get from this scheme to keep tuition high? They don’t get the interest from the loans. They certainly get money, but not a significant amount. And some can’t raise it that far. According to the Center for Digital Education while “many colleges looked to offset losses in state funding by increasing tuition costs,” some states have limits on tuition hikes. Missouri schools charging above the state average are permitted to raise tuition up to the annual change in the consumer price index. In Maryland, tuition increases are tied to a three-year rolling average change in median incomes.

Of course if colleges were interested in getting more money, they would not give out so many scholarships and discounts on tuition. And on the generic point that colleges have no incentive to cut costs, one might ask why they have consistently cut costs to their central element of teaching— hiring more adjuncts at cheaper rates than the more expensive tenured positions. Administrative positions and salaries are a problem unto itself, but since Kirk didn’t specifically mention it, I won’t.

Economic incentives to cut tuition would include I suppose fewer students. But we see the opposite happening. Another incentive would be smaller faculties. But with the rise in students, that isn’t happening.

4. College is not worth it.

Kirk is arguing that college is not “worth it” in some respects, even though he adds a qualifier. Why does he say this? Excessive tuition, lack of jobs, and significant loans to pay back.

He uses Mike Rowe to summarize, though this is a misleading generalization: “We are lending money we don’t have to kids who can’t pay it back to train them for jobs that no longer exist.”

One, the federal government clearly has the money. Rowe’s statement implies we should cut the funds and pay for less or other things.

Two, the default rate on federal student loans is 11.5 percent. According to The Washington Post, at private nonprofit colleges, the default rate edged higher from 7 percent to 7.4 percent. For-profit colleges, which historically have had some of the highest levels of defaults, posted a 15.5 percent rate, up from 15 percent.

Third, Rowe’s job comments seems to sum up Kirk’s attacks on “sociology, cinema history and gender studies” majors earlier in the video. If “cinema history” means “film studies” to Kirk, it is one of the fastest growing majors because of the success of its industry. Sociology provides many pathways into the job market. And of course “gender studies,” the often derided area, also provides wide pathways.

A Rigged System

Finally, for Kirk, the “game of loans” is rigged against the student. But a smart person will “beat the odds.” Yet the video doesn’t present any solutions. It does imply a response — anger, frustration, indignation. These emotions are the incentive to act. But other than not voting for the politicians, what is the policy, action, or whatever Kirk wants?

With this absence along with the problems with its logic and no real evidence to make the television analogy, this video as an argument would not do well in my class.