Start Date: May 7, 2023

Suppose you live in a nice neighborhood. Homes are fairly expensive. You work hard to pay the mortgage. Perhaps you saved and put down a good deposit and whenever possible add a little extra payment against principal to lower the interest due. You are on your way to being a debt free homeowner.  But a few doors down the block someone else bought an expensive home on the hopes of getting a big promotion and raise. Their purchase had little or no down payment.  Sadly your neighbor didn’t get the big job and the big salary and now they are having difficulty paying their mortgage. You feel badly for them but are shocked to hear that instead of some sort of default or extended payment program, the government told you and others living on your block that you had been assigned to pay your neighbor’s mortgage. It even asked people who were renting nearby apartments, people who knew they couldn’t afford and didn’t want a house, that they too would have to pitch in for the neighbor who isn’t making his own house payments. You would likely be outraged. You all assessed what you could afford. Why are you gifting someone a home?

Welcome to the world of ”student loan transfer.”  This is the program, proposed by some in government, whereby people who paid for their own tuition, or are paying their child’s tuition, or the loan for their plumbing supply truck, or beauty salon, or yard work equipment, or even the janitors and housekeepers who have no intent to borrow anything, will be made to pay the debt of those who took on as much as 100’s of thousands of dollars in loans and aren’t going to pay it back.  

They will tell you that it is loan “forgiveness.” NO. “Forgiveness” would be if your neighbor’s bank said, “that’s OK you don’t have to pay your mortgage.” That would seem unfair, since you have to pay yours, but it would not impose on you. Tuition “forgiveness” would be the colleges remitting the money to the government loan programs that paid the tuition. They could do that. The most elite colleges have endowments in the billions. Harvard’s endowment is over $50 billion.  In 2020 the graduating class was a little over 1600 students. Tuition is roughly $55,000 per year. Yes I am ignoring dorms etc., but for this exercise it suggests that Harvard could pay for tuition for 500 years using the endowment. OK, they need some money to keep the place running. Suppose they get a mere 2% return on the $50 billion and use just half for scholarships. That is $500 million per year. And it is tax free. There is no reason they could not self-finance whatever tuition they feel compelled to charge. 

No, not all colleges are Harvard but they are institutions that took taxpayer funded money from a student loan program and then, in too many cases, did not provide the student with sufficient skills to get a job with the necessary salary to pay it back. They also were in the best position to know what a degree in Middle English, or some other pursuit, would allow.  

Most entities don’t volunteer to take on legions of customers who have a fair likelihood of not being able to pay their bill. It isn’t a good financial model. With one exception. If you know the required fees are backstopped by an institution that can simply mandate others pay, or even print money, i.e. the federal government.

If you have been looking at housing then you know prices have increased rather dramatically in the last decades. Though the steepest spike was preceding the 2008-2009 bubble-bust when people were offered mortgages with little or no down payment and low starter payments. That flooded the housing market with buyers, which then increased demand. Mercifully the government did not respond to the housing collapse by having you buy your neighbor’s home. Also a house, unlike college credits, is a physical asset. Properties were repossessed.  It caused a reduction in prices for some time. Banks failed. While painful it served as a deterrent, until recently, from giving loans to people who cannot pay them, and making commitments you cannot fulfill.

For all the inflation in energy, housing, and healthcare, no industry has increased in price at the rate of college education.  Much like the housing bubble, the increased demand spiking tuition is because someone else is paying the bills. But the colleges, unlike banks, assume neither risk nor responsibility as long as payment is guaranteed by someone, anyone, even the neighbor in our allegory. The worth is never tested the way a mortgage broker assesses a property for sale, despite the tuition loan being equivalent to the cost of a modest property in much of the country. And so we hear on the news that major universities are now raising their annual costs to nearly $90K per year. Thus the government guarantee is not only forcing you to assume another person’s debt, but is in fact making the debt greater, and more likely to go unpaid, by incentivizing the colleges to endlessly increase tuitions. As long as that is guaranteed there will be no tuition crash. Charge as much as you want. For colleges, tuition is just an ATM card that accesses the national budget. Invoice away!

During COVID the schools provided none of the on-campus experience of college and even reduced education to videos, suggesting it could all be replaced by digital recordings and a few tutors. Yet in most cases the stratospheric tuitions and fees were not reduced.

On a personal note I will say that my days at 20th century undergraduate and graduate institutions gave me some of the most rewarding and pivotal experiences of my life. My STEM (science, technology, engineering, and math) teachers gave me my career and my history teachers provided some of my most fascinating learning experiences. But the undergraduate institution, even out-of-state, cost my parents much less than their middle class annual income. The graduate program was free. 

The term “robber barons” was used in the 19th century to describe American industrialists who became profoundly wealthy but were believed to employ unethical business practices. However the legacy of those men provided much of the infrastructure of our nation that is still in use today, including transportation, energy, and financial institutions. 

Our century needs a society of both skilled trades and college educated architects, doctors, engineers, lawyers, financial mangers, and people with a thorough and unbiased knowledge of history. But colleges that simply take free money with no regard for the quality or relevance of their instruction, impoverish the nation and, unlike the robber barons of old, leave nothing of value behind.