By George Leef
One of the key insights of what’s called Public Choice theory in economics is that politicians gain when they spend tax dollars in ways that generate concentrated benefits for a small group of people at the expense of the whole number of taxpayers. If the small interest group knows about the politician’s “generosity” (and the politician makes sure to remind them as often as possible) while the taxpayers don’t notice the tiny increase in taxes or national debt, the politician has bought increased support at little or no cost.
Among the many issues where that plays out is government higher education policy, especially student loan forgiveness. When politicians support measures to reduce or eliminate the federal debts students have rung up in getting their degrees, the students and their families are grateful. The taxpayers who must shoulder that expense don’t know or care much about it because the impact is so small and usually hidden.
That’s why these measures have been popular with politicians on both sides of the aisle.
Recently, two Democrats have launched a bill that would increase the existing level of loan forgiveness. It’s called the Affordable Loans for Any Student Act, sponsored by Rep. Rosa DeLauro of Connecticut and Senator Jeff Merkley of Oregon. As Jason Delisle and Cody Christensen of American Enterprise Institute explain here, “If enacted, the bill would make student loan forgiveness routine, even for borrowers with the means to repay.”
The bill accomplishes that by raising the amount of income that the current federal Income-Based Repayment (IBR) Program is based on. As the law stands, students who choose IBR need only pay back 10 percent of their income above a threshold amount, which is now set at 150 percent of the poverty line. If their income is below that amount, they owe nothing. The bill would raise that threshold to 250 percent of the poverty line, meaning that many more student debtors would be freed from paying Uncle Sam back.
Running some numbers, Delisle and Christensen observe that a student who gets a job paying $35,000 and who has a loan balance of $28,000 would reap a considerable benefit under the bill. His monthly payment falls from $140 per month to just $39, and after 20 years the balance of the loan would still be $25,473 (versus being paid in full under current law) and therefore wiped clean – at taxpayer expense.
The effect of the bill would be to relieve many graduates of the need to budget to pay back loans they willingly took out. Personal responsibility declines and the national debt increases further. A double-whammy.
One writer who clearly sees the solution here is Kevin Williamson. In this National Review article he argues that we need to stop the federal student loan programs. If we could end federal student aid, he says, the main result would be that colleges would reduce their costs. “If you make a few gazillion dollars available to finance tuition payments with underwriting standards a little bit lower than the average pawn shop, you create a lot of potential tuition inflation,” he writes.
The only point I’d add to Williamson’s analysis is that federal student aid should never have begun because there’s no warrant for any kind of federal lending under the Constitution.
As long as we have federal student aid programs, conniving politicians will find ways to play special interest group games with them. If it ever becomes politically possible to cut the Gordian Knot and eliminate government college lending, America should jump at the chance.