It isn't whether
you win or lose, but….
Whether one even sees that there is an issue
associated with student loans depends upon one's approach to the game of
accomplishing socially desirable objectives. Differences in attitudes about
student loans reveal how people approach the game. Some people see only one way
to subside demand for education. Their approach whenever there is a problem is
for the government to throw money at it. A totally different approach is to try
to figure out how society can be organized so that the educational objective is
achieved as a natural result of the way things are organized.
A previous posting suggested that the wrong
institution, government, is accepting responsibility for guaranteeing student
loans. If subsidizing educational demand by lending students money to finance
education is appropriate, primary beneficiaries of subsidized demand are the
academic institutions and their faculties. They should participate in risk
associated with the loans in some fashion.
The academic institutions that benefit from
subsidizing demand are only a part of the story. Those who overlook the
possibility that there are solutions other than the government throwing money
at the problem, frequently fail to recognize that all policy issues involve
individuals. Students and their families are involved.
At this time of year it seems appropriate to use the
classic movie "It's a Wonderful Life" to illustrate the point. In
previous years the movie was used to illustrate points about good financial
management both at the personal and national policy levels. That is not too
surprising given the relationship between good personal financial management
and a wonderful life. In addition, national
financial events are an important backdrop for events in the movie. However,
the movie's relevance to how student loans relate to a wonderful life is more
subtle. It illustrates an unfortunate and telling change in attitudes toward
how one should achieve a wonderful life.
“It's a Wonderful Life” reveals so much about how to
achieve a wonderful life that it's easy to miss the message regarding student
loans. However, attitudes toward getting a higher education appear at a number of
points during the movie. But the dinner conversation between George Bailey and
his father is particularly telling.
The conversation covers a number of topics, most
importantly the father-son relationship between George Bailey and his father.
But, with regard to education, it shows just how much achieving an education
was considered a family affair. George references working to save up money to
go to college, and he discusses how he and his brother plan to coordinate their
efforts to get a higher education.
What is particularly relevant is that there is no assumption
that the world owes them an education. Rather, it is something they can achieve,
and it's their responsibility to achieve it if that's what they want. Perhaps
the message of the movie is that that attitude of accepting responsibility is
the key to a wonderful life.
It is unfortunate that we as a society are depriving
a generation of that sense of achievement. As discussed in a previous posting
entitled “Educational Loans: Dare We Ask Who Benefits from the Subsidy?” there
are social benefits to having an educated population. That previous posting
argued that given our current approach, it is unlikely that we will get a level
of investment in education that results in achieving the appropriate social
benefits. One might also argue that achieving that objective without
facilitating the growth of a sense of responsibility is inappropriate and is a
disservice to the individuals involved.
More importantly, acknowledging
the benefit to society is quite different from saying that any individual is
entitled to education because of the potential social benefit of having a
generally educated population. The issue is illustrated in a December 13 WALL
STREET JOURNAL article. The article is entitled, “Student-Debt
Plan Faulted: Some people who paid off their loans see an injustice in federal
forgiveness programs.”
The subtitle pretty much says it all, but the
article is quite explicit. It reports that some people who paid back their
student loan are “enraged to learn that millions of other borrowers will get
off easier. The government is set to forgive at least $108 billion in student
debt in coming years under plans that set payments as a share of borrowers’
earnings and eventually forgive a portion of their balances.”
One can focus on the injustice of it, but there is a
more important point. Those who have paid off their student debt have a right
to feel that they earned the right to their education. They achieved it by
accepting responsibility to return to society the resources that society
provided to them to facilitate their education. Is it legitimate for them to
feel that the federal government wasted $108 billion by educating people who
are proving that they didn't deserve the subsidy the government provided by
lending them the money?
It's possible that the $108 billion wasn't a waste.
It is just possible that a subsidy of that magnitude in addition to the subsidy
implied by the government guarantee of their loans is justified. Perhaps there
is that much benefit in having people educated. However, it would seem
illogical to argue that subsidizing people who don't repay the debt is more
productive than subsidizing the more responsible borrowers who chose to pay
back the loan. Arguing that lending to
irresponsible people is desirable seems like a stretch. Especially when one
considers that if the loans are repaid, society can then lend to other students.
One also has to wonder: How do those who were never able to go to
college for financial reasons feel about paying a share of the $108 billion? The
injustice argument certainly seems relevant since they never had the benefits
of college but are paying so that others can. One also has to wonder why
individuals who never went to college but lead responsible adult life aren’t
equally deserving of a subsidy.
The last posting on educational loans was over a
year ago, October 27, 2015. Further, the inappropriate structure associated
with student loans is not a new phenomenon. The WALL STREET JOURNAL on December
21 had an article entitled “Unpaid Student Loans Bite Seniors.” The article
reports that, “The federal government is increasingly taking money out of
Americans’ Social Security checks to recover millions in unpaid student debt, a
trend set to accelerate as more baby boomers retire….Overall, about seven
million Americans age 50 and older owed about $205 billion in federal student
debt last year. About 1 in 3 was in default, raising the likelihood that
garnishments will increase as more boomers retire.” So, why is another posting
on the topic timely now?
There are four reasons to revisit the issue. One is
the sheer size of the misallocation of resources involved. $108 billion is a
significant sum, and, like any government expenditure, there's no reason to
believe that it won't grow. Especially, when one considers that many baby
boomers and current students don't view their student loans as an obligation to
society.
Second, we have raised a generation who don't think
in terms of being worthy, but rather think in terms of being entitled. People
who think the government should pay for their education are not likely to feel responsible
for repaying society for the resources they've used in getting their education.
We certainly haven’t created an educational system that instills a sense of
responsibility in students.
Third, both political parties should be willing to
address the issue. One political party likes to emphasize the social benefits
of higher education to the absurd level of suggesting it should be “free,” or
put more honestly, paid for by someone other than the recipient. The other is
headed by a president-elect who has acknowledged the obligation of higher
education to provide a service of value:
By settling a lawsuit related to the University that bore his name, he
has acknowledged that responsibility. Perhaps he will realize that the same approach
should extend to all institutions of higher learning. Every college would have
to provide value if they were forced to accept the financial risk associated
with student loans. It would certainly be a more socially efficient approach
than forcing students to sue their colleges when they don't think they received
adequate value.
Finally, the previous posting back in October of
2015 was incomplete. If the government is taken out of the role of the student
lender or guarantor of student loans, the basic structure of the student loans is
no different from any other loan. The government may provide a subsidy in a
form other than a loan guarantee, but there's no reason why that subsidy has to
dictate the terms of the loan.
Student loans could then be treated like other loans,
and if it’s impossible to repay them, they could be dismissed in bankruptcy. Thus,
students who borrow and then repay or that finance the education within the
family, as in the “It's a Wonderful Life,” will demonstrate how to play the
game: take responsibility, be grateful for the opportunity, be thankful for the
subsidy that would replace the loan guarantee, and do the best you can. Win or
lose that seems like a better route to wonderful life than living with the
illusion that others are responsible for your future.
