As someone with many left-leaning views, I’m troubled by the negative economic impact likely to arise from the platforms that democratic candidates are touting.
Among these problematic platforms is Elizabeth Warren’s student loan debt forgiveness plan.
The free-education movement will ironically create education-free states.
Forgiving debt is one thing — and maybe the fed can cover that by taxing the mega-rich. Whether that’s a good plan or not, I don’t have much opinion. Personally, I’m neither mega-rich, nor do I possess any student debt so I don’t have skin on either side of that game.
I never wanted to go into debt — this is a lesson I learned from watching my mother who was buried in debt all through my childhood. When I moved away at 18, she was eating through credit cards, using a new one to pay off the old. Some of this was poor spending habits, but overall, it was the simple downward spiral of the debt cycle. She would call me to borrow $50-$100, after tapping out everyone else she could — just so she could pay the minimum interest on a 27% APR debt. I would loan her money when I was able, but most of the time, I was counting dollar bills to buy groceries. When I moved to Seattle after high school, I didn’t have a plan for University. I had nearly $2K in savings, a combination of hard-earned days working at Denny’s (what was my only job prospect if I stayed) and what was left over after buying a car from a generous California program that covered unpaid child support — I don’t even know what that program was but I got a check for $3K from the state when I turned 18 and it saved my life and made my future possible. Among many things that could have gone different in my life and made me turn out homeless, a drug addict, dead, a criminal, this is one of the occurrences that stands out as a shining fork in the road. I bought a car for $1.6K, drove to Seattle, found a $300/month room in what amounted to a crack house and began looking for work. I was excited that the room I rented was on the campus map for the University of Washington (just to west, but within the rectangular zone that defined UW). My girlfriend was enrolled at UW, so I spent a lot of time there, hanging out with the other students, eating at the cafe (when she would buy me lunch), doing my laundry at her dorm, watching movies in the dorm lounge. I felt like a student. But I wasn’t a student; I was working, shit jobs for shit money. But I didn’t have any debt — and that was key. I passed by and scoffed at the credit card booths stood up in front of the student hub building. Visa was luring college students right into the debt cycle. Sign up, it’s free, you get a bonus and a thermos. You are already in so much debt from school, why not get a credit card and keep the trend going. You will have money in the future, right?
My girlfriend had her school and expenses paid for by a relative. She didn’t seem to understand my situation and we argued occasionally about my obsession with money. I would comment about the daily net revenue of a full theater, counting the number of seats, or the hourly wage of a panhandler, or devise ways of getting a million people to give you a dollar, and for a while she grew to think poorly of me until the day, in tears, I ripped up my last $10 bill with the explanation that I hated money. The need to make money was a prison, and I was a prisoner. Being employed full-time didn’t save me from living paycheck to paycheck and carefully balancing my food budget to stave off the ever encroaching possibility of homelessness. After several years of this, I started moving up in the food service industry, making enough money waiting tables, with good shifts at a high-end restaurant. I had extra cash each, netting just over $2K/month with no bills or debt aside from my room of $500/month. I felt rich (even though I was technically just above the poverty line). I started a plan to attend Seattle Central Community College, taking one or two classes during the week and working only Friday, Saturday, and Sunday night. It worked! I paid for college out of pocket with money from waiting tables. It was astounding. It was only a 2-year community college, but it was still an education that would train me out of the food service industry into being a code monkey. The community college had a web development program and just before finishing the program, I got hired at a company for $28/hour! That was more money than I ever thought I would make. Over 15 years later, I still haven’t finished my associates degree and I couldn’t have imagined then the salary I have now.
So with that backstory tangent, I don’t have skin in the game, but I have friends and family who have student debt and would be affected by this, and I am sympathetic to debt amnesty. But there is a high economic cost. Here it is.
Let’s imagine we stop at debt amnesty. This leads to a natural psychological consequence: debt accrued from education is not real. So why not take out more debt? Why not raise tuition? Economically, it puts the burden of these decisions on some vague external entity. This powerfully influences inflation, devaluing the reality of debt also devalues the dollar, and the value of money continues to fall. In lieu of posting someone else’s copyright image of the deflating value of the dollar, here is a google image search with some enlightening graphics.
So we can’t just stop there — we have to change the system. We have to prevent Universities from raising rates and more debt from piling up in hopes of future amnesty. Elizabeth Warren proposes that the federal government and each state government split the cost of all 2 year colleges and 4 year universities. She proposes that the federal government will pay for this with a tax on the mega rich (the same source as the amnesty payment). I’ll leave the argument on the table of whether that will suffice and move on to the problem with states.
To pay for half of higher education tuition, states will either have to raise property taxes or add/increase income taxes (unless Modern Monetary Theory is applied, which is currently not part of the proposal). If states raise property taxes, this adds to the negative side of gentrification, causing poorer people who have paid off their mortgages (maybe generations prior) to not be able to afford to keep their land/homes, pushing them outward from successful society, which is a subtle/indirect starting point for the foundations of eugenics. This push happens without policy, but we have to be careful as we push for progress that we limit the impact of splitting society into geographic casts.
If states raise income taxes, it pushes the burden of education cost to all citizens of states that are willing to shoulder this program. But some states simply won’t shoulder this burden. Washington being a prime example, which currently has no income tax and is nearly bankrupt, will likely fail to come up with funding due to lack of votes (we have said “no” to income tax many times) and will be forced to close all colleges and universities. Most if not all states lack the financial ability to cover this idea with current enrollment rates — and free education will increase enrollment, creating a parabolic increase to the burden. States simply cannot afford this without taxation, which leads to higher cost of living, higher wage demands, inflation. As states fail to uphold their end, the free-education movement will ironically create education-free states.
But we have a better model.
Deferred tuition, automatically paid as a percentage of your first 10 years of employment post-graduation.
Planet Money (NPR) has a great story about this.
It started in Chile, and is being tested by some Universities in the United States, Purdue University among them. This keeps the burden of repayment on the individual who directly benefits from the education expense and, more importantly, it adds a missing incentive to educational institutions to train students for success in the workplace. Today, unless you are going into academia itself, universities don’t have a vested interest in your success post-graduation. You paid them, they gave you the degree you asked for. Whether that degree is useful to the world is not their concern. For decades we have heard a tainted mantra that any degree is better than no degree. If in doubt, get an English or history degree, communications, psychology, theater. But then what? The university needs an incentive to drive people toward degrees that are valuable, degrees that have real job prospects, not just degrees that serve to fund the educational system through debt.