Trump’s Student Loan Plan is Bad Economics

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At a campaign stop in Columbus, Ohio, one month before Election Day, Donald Trump shared his plan for addressing voters’ growing concerns about student loan debt.Trump’s student loan repayment plan came late in the campaign cycle, long after Senator Bernie Sanders and Secretary Hillary Clinton released their respective plans, both of which would have increased government intervention in higher education, further distorting the already-convoluted education and student loan markets.

At the time of his speech, Trump’s proposal seemed likely to elicit support from voters, especially among millennials concerned about college affordability and rising levels of student loan debt. From 1980-2014, the cost of attending college rose by nearly 260%. Total student loan debt is nearing $1.25 trillion, and over forty-three percent of former students who borrowed from the federal government are in default, behind on their payments, or aren’t making payments on their federal student loans.

Free market advocates had hoped that Trump’s proposals would constructively tackle the causes of the student loan bubble. Alas, this was not to be. Instead, Trump’s plan bears more similarities to alternative plans released by Obama, Clinton, and Sanders than many conservatives would like to admit.

Called “the most liberal student loan repayment plan since the inception of the federal financial aid program” by The Washington Post, Trump’s proposal would cap repayment at 12.5% of a borrower’s discretionary income. Furthermore, a borrower’s remaining student loan balance would be forgiven after he or she makes their full payments for 15 years. While it’s possible that Trump has considered restoring the pre-2010 system, in which private banks (instead of the government) issue student loans, such loans would still be subsidized and guaranteed by the federal government, eliminating much of the risk that incentivizes banks to engage in prudent and sustainable lending.

Basic economic principles help us predict how Trump’s student loan plan would affect the greater economy and the financial welfare of individuals. At any given time, there exists a limited amount of funds available in capital markets. This capital can be directed toward any number of alternative uses (home loans, car loans, business loans, etc.). But government artificially boosts demand for student loans when it intervenes in the market by enabling student borrowers to repay less than the balance of their loan. This artificial demand for student loans bids capital away from alternative uses, making it more difficult for families and businesses to receive loans for other important purposes.

Moreover, the cost to taxpayers would be steep. The federal government (and, by extension, current and future generations of taxpayers) would be responsible for paying the remaining balance of everyone’s student loan debt after their loans are forgiven. Colleges and universities would grow even richer, receiving billions of dollars as wealth is redistributed from America’s taxpayers to its institutions of higher learning.

Today’s college tuition is so expensive because easy-to-acquire federal student loans have rapidly boosted demand for higher education. Unless supply keeps pace with demand, prices will inevitably rise. Millions of students have become burdened with previously unimaginable levels of student loan debt needed to finance schooling that has been made artificially expensive by government intervention.

If Trump had been sincerely concerned about college affordability and the soon-to-burst student loan bubble, his plan would have eliminated the federal student loan system entirely. As Jason Morgan predicted in his recent article for Mises Wire, “Without the artificial demand generated through taxpayer-funded subsidies, universities [would] be forced to lower their tuition prices to meet what students and their families are able and willing to pay. This new reality [would] force higher education institutions to adapt to the needs of students.”

Instead of addressing the underlying cause of the problem (namely, the inflated cost of education resulting from federal education subsidies), Trump’s proposal attempts to mitigate the regrettable effects of government’s intervention into the student loan market by forgiving the debt of millions of working professionals.

While Trump’s proposal might score him political points among millennials saddled with an excessive volume of student loan debt, it certainly doesn’t make good economic sense. We might momentarily feel better if our student loan payments are reduced and our balances are forgiven, but we will all be poorer because of it.


This article was originally published by The Mises Institute: https://mises.org/blog/trumps-student-loan-plan-treats-symptoms-not-disease.

Distracted Colleges Fail to Equip Workforce

800px-seattle_u_admin_03Seattle University students are occupying the lobby of the school’s college of humanities, demanding the resignation of its dean.

The offense? According to the students’ petition, the college’s faculty and curriculum “traumatize,” “tokenize,” and “pathologize” students, resulting in a “profoundly damaging” student experience that has “lasting effects on [their] mental and emotional well-being.”

The students contend that the problems they are facing will only be corrected once the Seattle University humanities curriculum is replaced with a “non-Eurocentric interdisciplinary curriculum,” taught by staff from “marginalized backgrounds,” and “especially professors of color and queer professors.”  They want the college to “radically reinterpret what it means [for the college] to educate teachers and leaders for a just and humane world.”

In their minds, this can only be achieved by “centering dialogue about racism, gentrification, sexism, colonialism, imperialism, global white supremacy, and other ethical questions about systems of power.”  In other words, they want education to be rooted in the victim theories popular in the leftist culture of the modern academy.

FPIW’s most recent video, filmed at Seattle University, illustrates perfectly what happens when proper education takes a backseat to leftist social justice causes.

Higher education’s undue emphasis on elevating social justice, diversity, and tolerance diverts attention and resources away from the traditional purpose of education, namely, to prepare students with the skills and knowledge necessary to become productive citizens in a dynamic economy and society.

The recent events and video filmed at Seattle University are manifestations of the prevailing trend in higher education that seeks to indoctrinate students with a perspective that leaves them wholly unprepared for the workforce, and thus harming families in the long run.

Students of today and employees of tomorrow suffer when education is disproportionately devoted to topics arising from postmodern academic thought.  The University of Washington, for example, offers an undergraduate major in “Gender, Women, and Sexuality Studies,” which features course offerings such as “Queer Desires,” “Feminist International Political Economy,” and “Lesbian Lives and Culture.”  It goes without saying that most students who devote their academic studies to classes like these will likely be unprepared for the modern workplace.

There is little doubt among employers that colleges and universities are failing to properly prepare students for the workforce. A Braun Research survey of 500 senior executives indicates that nearly 60% of them believe that higher education is inadequately preparing students for today’s workforce.

Where is the skills gap most apparent? The senior executives who participated in the Braun Research survey mentioned soft skills (44%), including communication, critical thinking, creativity, and collaboration, as well as a lack of technical skills (22%). A robust study of humanities in core curricula would address the former while additional STEM programs and technology integration in the classroom would alleviate the latter.

Simply put, students whose education focuses primarily on gender and race studies, cultural and moral relativism, and anti-colonialist, anti-American, and anti-Western sentiments are far less prepared to make a living for themselves, let alone provide for a family.

Even students who don’t major in gender or race studies experience a lower quality education when taught by liberal academic institutions.  The National Association of Scholars publishes a list of the books most commonly assigned by universities as required reading for incoming freshman.  Their study found that the majority of assigned books are recently published and politically progressive, with topics focusing on victimization and oppression.

It appears that instead of encouraging their incoming students to familiarize themselves with enduring literature or books that will prepare them for academic and professional success, schools have been using texts to advocate progressive causes.

In recent years, universities began hiring diversity officers and other administrators to ensure compliance with prevailing conceptions of political correctness. Nonacademic administrative employment at U.S. colleges increased by 60% from 1993 to 2009, according to data from the Department of Education. This administrative bloat drives up tuition costs, increases student loan debt, and crowds out valuable resources that could otherwise be used for instruction and research.

With total national student loan debt nearing $1.25 trillion and graduating students facing an average debt of $37,172, colleges and universities have an obligation to provide students with a quality education that prepares them to enter the workforce. Without these skills and knowledge, both individuals and families suffer.

This ballooning burden of student loan debt increases financial insecurity.  Quality education leads to sustainable employment, providing the economic foundation without which many millennials will not enter into marriage.

Improving the quality of education will increase economic opportunity and strengthen families. To accomplish this task, colleges and universities must refocus their efforts on providing students with the skills and knowledge necessary to be successful in the modern workplace, without the added distractions of diversity and social justice advocacy.

This post was originally written for the Family Policy Institute of Washington:  http://www.fpiw.org/blog/2016/05/16/opinion-distracted-colleges-fail-to-equip-workforce-hurt-families/.