The same thing happens in politics. Vaporware policies are a free currency that “buys” the kinds of voters a candidate seeks. More important – it buys precious morsels of PR in a crowded field and media
Today, let’s zoom in on Senator Elizabeth Warren’s vaporous college loan forgiveness plan.
College Debt Forgiveness Realities
I’ve done volumes on the future of education in Econovation, articles and recent episode of The McFuture podcast. You can even check out my education predictions and outcomes here. Suffice it to say, I have legit reasons for disliking college loan forgiveness, even by vaporware standards.
Even so, there are points of agreement with Warren and company:
- College costs are out of control
- Debt levels are inexcusable
- Quality and ROI of too many schools and degrees is questionable, at best
Where we diverge:
- Root causes of these problems
- College as the best path to future success
- Effective solutions
- How much government intervention and financing is needed
Before I get into the problems with this proposal. I’ll concede it’s not all terrible.
There’s some truth to the idea that loan forgiveness could act as an economic stimulus. Money that would have been re-paid directly to the government, which holds 92% of student debt, would instead circulate in the economy. The problem with this “economic multiplier” idea is it’s not 1955. Back then, most businesses were local — or domestic. Money actually circulated in communities, creating jobs and tax revenues.
Today, most multiplier arguments are grossly overstated for political ends. The Fortune 500 represents almost 75% of GDP and they’re GLOBAL. Multinational chains, foreign manufacturers, and tax-sheltered e-commerce giants don’t recirculate money in communities. There aren’t many local cobblers or repair shops. Amazon, Domino’s, and Zara sop-up those profits at corporate headquarters, distribute them to shareholders, or buy back stock.
The second argument made by Mrs. Warren is this will reduce inequality. Oh no, no, nooooooo…..
In fact, let’s start there…
7 reasons debt forgiveness is TERRIBLE policy
1. It robs the poor to pay the rich
Only 34% of Americans get a four year degree. Generally, those who do, earn hundreds of thousands more over their lifetime. So debt forgiveness steaks from the bottom 66% to subsidize grads who will out-earn them. And it gets worse. A whopping 40% of loans are for graduate schools – for high-earning MBA’s, PhDs, lawyers and doctors. Professionals who will out-earn us all! This is who truckers, Lyft drivers and Kroger managers must subsidize? Is this a joke? This policy creates inequality. You know, the thing these noble legislators pound on podiums about. Nicely played, “Progressive”. You almost got me. Thought you were here to help.
2. Thy killer is not thy savior
The main reason we’re in this mess in the first place is crony government intervention.
By creating Fannie Mae, the government unleashed unlimited debt by backing student loans. Once unlimited lending became risk-free, colleges and banks would have been irresponsible not to soak up every last morsel through obscene tuition hikes. Hey, it’s what the market will bear.
When both policies were about to implode in 2010, government took over all private college debt. Problem solved? No. Taxpayers pay for idiocy.
And just when you thought it couldn’t get any worse, the CHAIRWOMAN of the Financial Services Committee, the notoriously corrupt Maxine Waters, showed she had no clue student loans were taken over by government. Watch our fearless protector interrogate bank executives. First, lock up all your meds:
These are our saviors? The incompetent hucksters who got us here?
There are countless articles on the sinking ROI of college for students and society. A few key points:
College is already failing as a vehicle for generating success. Back out trade majors (engineering, medicine, finance, law) and top 10 or 20 schools and you have negative ROI on higher education.
We have a $1 Trillion annual deficit. Total debt tops $22 Trillion. Social security is about to go insolvent as baby boomers – and soon, Gen-Xers retire. We have a shrinking population and tax base to fund existing programs.
Anyone who claims we can fund new programs, without massively raising taxes on everybody, is lying. Confiscating all assets from every US billionaire wouldn’t cover three quarters of one year’s budget.
We still have freewill, right? School is still a choice. I know victimhood is fashionable, but it’s also an excuse. To have the federal government spend $640 billion (nearly $2,000 per person) for people who voluntarily chose to take loans is an irresponsible moral hazard. They weren’t ‘violated by the system’. They made terrible assumptions of better career prospects and unfortunately, learned a brutal lesson. The same lesson learned by millions before them, who paid off worthless degrees from subpar schools. Should we compensate those historical ‘victims’ too?
Luckily, there’s a fairer way to fix this, justly. Keep reading.
5. We, the people, have the power to change this
Just like degrees are a choice, employers can choose whether to mandate them or not. Since I proposed companies eliminate degrees as a job requirement, major companies like Apple and Google did just that. There’s more we can do.
Individuals have unlimited education and communication tools at our fingertips to make ourselves qualified, just not certified on a piece of parchment paper with our name and college branding. We are just one small decision away from eliminating employer demand, which creates this ridiculous certification arms race in the first place.
6. Our saviors don’t believe it, either
(Actually only a tiny fraction of the 34% with degrees and active loans would benefit.)
7. Distorting Education & Job Markets
On a macro level, that hurts the whole economy, as cost of plumbers and electricians skyrockets and manufacturers move overseas because they can’t attract talent.
We have real options to solve college debt that align everyone’s incentives, drive down costs & eliminate debt. Here are some citizen and policy solutions:
- Reverse 90’s-era ban on student loan defaults. This is an undo instead of pile-on. It un-lobbies the student loan bankruptcy exemption. This creates a real mechanism to eliminate burdensome college debt, minus the moral hazard of forgiveness at the expense of poor people. Bankruptcy carries both benefits and consequences, as it should.
- Phase out Sallie & Freddie; replace them with grants for those with financial need.
- Pre-negotiate tuition and tuition hikes with any schools accepting public grants, loans, tax exemptions, or research funds. Contain this beast.
- Implement the 10/10 (or 15/15) plan I proposed and Presidential candidate Andrew Yang picked up on. This gives qualifying students money for college that they must re-pay at a fixed percentage for a fixed number of years, once they start working. Might be 10% for 10 years or a bit higher. I’d have to get the data to crunch the exact numbers. That way, incentives are aligned. If employment levels and salaries drop, payments drop, too. And schools become accountable for creating commercially viable graduates. Depending on the final cost, I could also be convinced to apply it retroactively to a segment of current borrowers, giving them credit for “time served” even though their borrowing pre-dated the program.
- Promote and facilitate the use of trade, vocational schools and apprenticeships across all professions, not just blue collar.
- We have over three million unfilled, high-paying skilled jobs. Fill them! Then, let’s revisit the tuition problem. I bet a huge chunk of it disappears. That means we need to do a better job promoting and glamorizing this work as dignified, contributory and lucrative. The same way we glamorized pumping out surplus media drivel.
- Employers, stop requiring degrees! Hire for talent and skills, instead. The tools to replace degrees are out there. I wrote a guide on what employees, executives and private companies can do.
- Empower yourselves. The tools are out there to be and do anything you want. From podcasts to Udemy and Coursera to coding schools. The rest is mindset and motivation. The Universal Success Formula can help.