Student Loans Indenture Our Children; Governor Cuomo Becomes a Feudal Lord Over New York’s Student Serfs

By Dan Smith

Stories about young people saddled with loads of school debts are everywhere today.  With almost $1.5 trillion of outstanding student loan debt, more than 44 million Americans have student loan debt. That means almost everyone knows someone who’s greatly burdened by such loans.

The burden is real. More than 11% of student loans are delinquent. As Pew Research has noted, “young college graduates with student loans are more likely than those without loans to have a second job and to report struggling financially.”

And student loans are demoralizing. Pew’s research also shows, “compared with young adults who don’t have student debt, student loan holders are less upbeat about the value of their degree.”

Must it be this way? Can government fix it? The answer to both questions is: NO!

Government can’t fix it. Government is the source of most of the problems, they need to STOP!

Debt is a Tool Which Needs to be Used Carefully

But let’s back up. Debt itself is not necessarily a bad thing. It can be a wonderful tool. A synonym for debt, ‘leverage,’ comes from physics and means a device which creates and focuses additional power in order to do work. And that’s what debt is—the ability to make an investment now and pay for it later when the benefits start to roll in.

But debt has obvious risks. The inability to repay debt and interest can cripple you financially. Historically, college almost always pays off: tuition costs were much lower and graduates mostly got good jobs to pay back their loans. But both ends of that deal have turned upside-down: good jobs are harder to come by and the tuition is so much higher today. And unlike most investments, you can’t get out of this one so easily—it’s almost impossible to get a student loan discharged in bankruptcy.

Borrowers are not happy with the choices they’ve made. Pew finds that, “only about half of student loan holders think the lifetime financial benefits of their bachelor’s degree outweigh the costs.” College used to be thought of as a tremendous investment. For many, that’s no longer the case. Our system has crushed that belief.

Perhaps worse, entrepreneurial activity has fallen. To a large extent, startups in the U.S. are driven by young people taking the chance to quit their jobs and pursue their ideas. Startups are the future of our economy. But debt-burdened young people are not in the financial position to take the chance of leaving their post-graduation jobs in order to put the ‘sweat equity’ into starting their own businesses. This is hurting their future. And it hurts the rest of us who might be missing out on the next Microsoft, Apple or Amazon.

And startup activity, while up recently, hit an all-time low in 2013. The number of startups always decline at the beginning of recessions, but they usually bounce back quickly (the out-of-work start their own companies). This time they didn’t, and many have cited student loan debt as a cause: NBC News, TED, CNBC, business.com, and many others.

Government ‘Solutions’ Are the Problem

Many progressive leaders are calling for loan forgiveness, where the federal or state governments forgive public loans or rework deals.  This sounds nice and would certainly help those with outstanding loans, but there would be a crippling cost. The money must either come from taxpayers or financial institutions, or both. Or, in some cases it comes from the students through their time—the forgiveness comes only with the promise to work for government for ten years.

New York has created a law which they say will eliminate future student loans, the Excelsior Scholarship. It allows certain students to go to college for “free.” But that means that taxpayers must foot the bill. And there’s a catch: the students must agree to stay in New York post-graduation for the number of years they’re in school . . . or pay their tuition upon leaving the state.

That’s just New York’s new form of indentured servitude. It indentures students to the land, like serfs to the feudal lord, Governor Andrew Cuomo.

People should want to stay in New York because it’s fantastic, not because of some deal they made with the Devil when they were 18.

America already has a $20 trillion national debt and moreover we have $150+ trillion in obligations for which there is no known way for them to be repaid. Loading taxpayers up with trillions more by forgiving student loans will only exacerbate that problem. Forcing banks to write off loans would destroy many businesses today, and all the jobs they support. It would also make it much harder or even impossible for anyone to get a loan in the future—students most of all.

Solutions Only Come When Focused on the Root Cause

No, solutions don’t come by waving government’s magic wand. That’s black magic. Solutions arise by looking at and address the root causes. Key symptoms include:

• Rising tuitions – students must borrow more and more
• Diluted worth of a college education – ability to pay loans back gets diminished
• Easy access to loans and financial aid – drives up demand, drives up cost

These three things are highly interrelated and they point directly at the true root cause: government.  Government’s programs to make loans more accessible and college more affordable sound wonderful, but have had horrible unintended consequences: they’ve made college much, much more expensive and diluted the value of a bachelor’s degree to the point where employers don’t value them nearly so much. So, students are borrowing more and having a tougher time paying it back. Study after study shows government’s role is direct and proportional.

The good news is that, despite the dropping value, college degrees are still worth it for many areas of study. The not-so-obvious solution to the problem is to get government out of the business of giving away or lending taxpayer money. And we shouldn’t be asking young people to make a four-to-ten year commitment post-college, when many can’t even choose and stick to a major.

In New York, that means ending Andrew Cuomo’s feudalistic Excelsior program. That program drives up tuition for other students, saddles taxpayers with yet more debt and taxes and make serfs out of our young people.

Making things “free” has never turned out to be so expensive. We must reverse that public policy choice if we hope to turn things around.

The post New York’s Trend Towards Indentured Servitude appeared first on Larry Sharpe, Libertarian.

The Excelsior Scholarship is the state-wide program Governor Cuomo recently established, which offers families who earn up to $125,000 per year free tuition for any CUNY or SUNY two- or four-year program. To be eligible, a student must take 30 credits per year, and then stay in New York state after graduation for as many years as he or she took advantage of the program. The scholarship converts into a student loan if the student fails a class or moves out of New York before the required in-state residency time is up. The scholarship is only for tuition, so it does not cover the cost of books, housing, fees, etc. This program is a bad idea for a number of reasons.

Bribing Students Increases Corruption

As Larry Sharpe explained in an interview on Live It Up with Donna Drake, Cuomo is essentially bribing people to stay in New York after graduation. Indeed, Governor Cuomo himself said the concept of the program “is that you’re going to stay here and be an asset to the state,” but if “you don’t stay here, then go to California and let them pay for your college education.” Cuomo looks at students as sources of tax revenue he needs to bribe into staying in state, not as individual humans with their own dreams and aspirations and families to feed.

The Excelsior Scholarship will trap people in state even if they can’t find a job after graduating. And it will also force people who are offered a great opportunity out of state into either foregoing the opportunity or being suddenly saddled with an incredible amount of debt they didn’t expect to have to pay back when they signed up—all so Cuomo can use them for their tax dollars. Worse, Excelsior incentivizes graduates to lie about living in New York on paper to avoid the pitfalls that are built into the system, adding yet another layer of corruption to a government program.

Free Bad College is Still Bad College

As Larry has said, free bad college is still bad college, if nothing is being done to address quality. The offer of free tuition will increase class sizes, which almost always decreases quality. Spending money to give individuals a poor education that does not prepare them to enter the workforce is a waste of taxpayer money.

Schools need to have skin in the game in order to have incentive to do better. By innovating and building better educational programs, universities can court students and earn the tuition dollars that students choose to spend. Giving colleges a guaranteed income in the form of millions of taxpayer dollars only rewards underperforming schools and makes them complacent. Just like in life, money doesn’t solve all problems. Yes, schools need funds to operate, but throwing money at the problem is never a good solution.

Target Students Aren’t Reaping the Benefits

On the surface, it seems like the Excelsior program benefits the poorest students who would otherwise be unable to attend school. But the scholarship doesn’t really help the people it’s claiming to. It might be a good deal for the middle- and upper middle-class students who can afford the other costs needed for school without also working a lot, but it doesn’t benefit the lower-class students who still need to work full-time (or close to) to afford housing, books, and other fees. Moreover, if a busy poor student juggling work and school slips and gets an F, the student must pay back the scholarship as a loan.

Known as the “last dollar program,” the scholarship only applies after Pell grants and other financial aid options have been exhausted. Most students who qualify for those other programs need the money for books, housing, and other expenses. But because Excelsior only applies after those other grants, the poorest students get the least amount of money.

We see this in other states that offer free 2-year community college. In Oregon, middle-class students are receiving most of the money— about 60% of the total Oregon Promise budget— because they’re ineligible for Pell grants and financial aid. So oftentimes, students who could afford tuition on their own get free college at the taxpayers’ expense. This defeats the purpose of the program—middle- and upper-class students can already go to college regardless of whether it is “free,” and the economically disadvantaged students aren’t getting the help these programs claim to provide.

Excelsior Economics Belie the “Free” Claim

We all know that “free” college isn’t really free. The taxpayers foot the bill, and since we can’t expect current state leaders to cut spending elsewhere, tax increases are inevitable. Not only that, but these free college promises that are being pushed throughout the nation are far from economically sound.

NPR asked 22 economists about Bernie Sanders’ free-college-for-all proposal, and 20 of the 22 called it a bad idea because it is wasteful to spend money on students who can already afford tuition. Sanders’ plan is a bit different than the Excelsior Scholarship, but similarly, the benefits go to people who aren’t truly in need of the funds.

Let’s look at basic economics: if a service is free, the demand for it goes up; when demand goes up, the cost increases. This means that free college programs are creating more demand for higher education, which is driving up the cots of tuition and fees. So those who don’t qualify for the program end up paying more. We already see this pattern of rising educational costs reflected in the enormous number of student loans.

In addition, offering free college also makes the education market imbalanced. It is incredibly difficult for private schools to compete with “free.” Once private schools start losing students, thus losing tuition payments, they will begin to disappear from the market, which hurts the diversity of education and lessens choices for future students. The wide range of different schools is extremely important in a state as diverse as New York.

Free College Devalues Degrees

If tuition is free, it will no doubt attract more students to apply for college. Morley Winograd, an advocate for free college programs like Excelsior, told NPR that these programs have the power to get more students to apply for college, regardless of whether the free college programs are able to deliver on their promises.

But flooding the college system will only devalue the college degree, like we see with high school diplomas. In his 2015 State of the Union address, President Obama said, “I want to spread that idea . . . that two years of college becomes as free and universal in America as high school is today.” We all agree that college should be more affordable, but devaluing the degree the same way free high school devalues the high school diploma won’t necessarily help graduates get into the workforce.

To learn more about innovation in New York education, check out this past blog post and Larry’s video here.

The post The Price of Free College: How Excelsior Pushes Education Costs Ever Upward appeared first on Larry Sharpe, Libertarian.