The Dumb Conservative Response To Student Loan Forgiveness — And The Smart One

Elizabeth Warren’s weak showing in the polls, lackluster fundraising, and late resignation of her campaign finance director make it obvious she’s got questionable staying power in the 2020 field. So, in an effort to remain relevant, she’s pitching mass student loan forgiveness. This is an appallingly dumb idea, mainly due to moral hazard:

• What’s to prevent someone from borrowing the covered amount going forward, regardless of whether they need it, and then sticking Uncle Sucker with the bill?
• What’s to keep institutions from further raising prices knowing they get paid up to the forgiveness limit?
• Why should the public pay for an increasingly uneconomic service when the providers have zero incentive to economize and reduce fees?
• What about debt contracted for private institutions? Won’t there be tremendous pressure to pay those debts off, too (regardless of the socioeconomic status of the families attending them)?

Unfortunately, Philip Klein’s response in the Washington Examiner is not just wrong-headed, but politically naive. His argument can be summarized as, you bought it with borrowed money, you pay it back. I’m in favor of enforcing the sanctity of contracted debt. I further agree with him that debt forgiveness as Warren outlined is a public financing catastrophe. But this response is bad as a matter of both moral clarity and practical politics.

1. The creep of mandatory college degrees even for relatively low-level employment kneecaps the  idea that somehow, people should just suck it up and pay. This needs to change, and perhaps there are signs that it is, but if a degree is a prerequisite to having a career, this is very thin gruel.
2. Universities are owned and operated by Democrats. This is a rare opportunity for Republicans to make the point that Democrats do not care about the people they supposedly serve. The growth of the administrative state inside universities has been fueled by easy college loans. This same bureaucracy administers unjust Title IX star chambers. Their salaries drive endless tuition hikes. Their annual tuition hikes make college unaffordable, and shackle young people with appalling levels of debt, preventing them from buying homes and starting families (in part).
3. Hacking away at the administrative state means clearing entrenched political opponents. As I’ve pointed out before, a rationalization of tuition costs will necessarily mean a reduction in certain majors. Grievance Studies majors will almost certainly be on that short list.

The better response — one which expands on my idea of bankruptcy as a means for fixing the college debt crisis — comes from Kevin Williamson in National Review. His approach, basically, is even more draconian: get rid of college loans altogether.

Here is a three-part plan for something practical the federal government could do to relieve college-loan debt. Step 1: The federal government should stop making college loans itself and cease guaranteeing any such loans. Step 2: It should prohibit educational lending by federally regulated financial institutions or, if that seems too heavy-handed, require the application of ordinary credit standards in any private educational lending, treating the student himself as the main credit risk in all cases, including those of secured or unsecured loans taken out by parents or other third parties for that student’s educational expenses. And 3: It should make student-loan debt dischargeable in ordinary bankruptcy procedures.

This is, of course, sure to meet with howls of protest from the universities, who see the gravy train screeching to a halt. Well, good. It’s about time.

Dumb Polls And The Value Of College

Pew recently released the results of a poorly-worded poll showing that Republicans now believe that college is a net detriment to the nation. The poll did not inquire about particulars of why this might be, e.g. the crippling debt colleges bequeath their inmates. There is a cost-benefit tradeoff that is simply not getting done on college sheepskins, in the main. University professors, and more importantly, the vampire army of administrators hiding behind them count on the anesthetic of widespread American cultural approval of college as a means unto itself. Consequently, a lot of degrees end up providing poor returns on the substantial sums required to get them. Pretending that college is an unalloyed good in this way is deeply dangerous, as the ranks of young people with poor job prospects and mountains of debt show.

Despite the weak wording of the poll, the answers hint at who might think of colleges as a negative thing, and why. It is simply undeniable that academia remains one of the serious redoubts of Marxism in the west; there are things so stupid only a college professor can believe them. As they age, the academics and academia more broadly have become increasingly illiberal: legal racial segregation, a modern Jim Crow, now finds its primary impulse, not in the rural south, but in places like UC Berkeley and CSU Los Angeles, both of which operate black-only dorms. Students employ the heckler's veto to disinvite heterodox speakers from campus. Title IX, originally designed to provide gender equity in things like college sports, now is used to peddle false, hysterical tales of rampant campus sexual violence, fueling witch hunts pursuing chimerical dating fiascoes, ruining the lives of young men whose accusers may never be known or confronted; such young men have no right to legal counsel or due process. Modern women's studies programs are home to one of the most pernicious, anti-scientific lies ever told, the idea of humans as a "blank slate". That is, they promote the notion that there are no distinctly male and female behaviors and modes of thinking driven by biology, but that all these things result exclusively or primarily from social conditioning. You will look in vain in any of their supposed scholarly papers for reference to anyone doing work with functional magnetic resonance imaging, or evolutionary biology; it as if they operated in an academic silo.

So it is entirely comprehensible why people might look upon the university today as a horrifically expensive, self-indulgent, and even dangerous institution. Academia has become a haven for progressive dogma. It is deeply intolerant of divergent opinions. And it has the mammoth support of the Federal government.

Some Good News About The Bankruptcy Option For Student Loan Debt

George Leef at the John Williams Pope Center for Higher Education Policy writes perhaps the most encouraging thing I've read in ages on the subject of student loan debt in a great long while. As it turns out, and contrary to my prior writing on the subject, student debt can be discharged through bankruptcy, but it requires going through special hoops to do it:

Writing on Huffington Post, Steve Rhode (who calls himself the “get out of debt guy”) states, “The general perception is that federal student loans are not dischargeable in bankruptcy. Obviously that assumption is not true because an allowance exists for discharge in the case of undue hardship. But many incorrectly assume that threshold is impossible or nearly impossible to accomplish.”

Rhode finds the support for his conclusion in his analysis of 35 adversary proceedings in 2012 where the debtor sought discharge of student loans through bankruptcy. In those cases, the debtor won full discharge in 47 percent and received some reduction or more favorably repayment terms in another 33 percent.

Those 2012 numbers are in the same vicinity as the numbers calculated by Professor Jason Iuliano from cases filed in 2007, which formed the basis for his 2011 paper published in American Bankruptcy Journal, An Empirical Assessment of Student Loan Discharges and the Undue Hardship Standard. Iuliano found that 25 percent of the cases resulted in full discharge and 26 percent resulted in partial reduction or easier payments.

It turns out further than representing oneself in bankruptcy court is entirely plausible, as Acosta Conniff v. Educational Credit Management Corporation showed in Alabama. Further, "the Department of Education recently released a “guidance letter” pertaining to undue hardship discharge cases" that "tilts the scales more in favor of students who are petitioning for bankruptcy discharge." Leef even advocates reverting student loan debt to normal status, i.e. where bankruptcy law was prior to 1977, which would allow easier discharge of unpayable debt and force universities and banks to rationalize degree programs. It's probably too much to hope for legislative change at this point, but that's what we need.

College Trade Group President Rejects Accountability To Students

There's no shortage of people who feel their work should not be graded; this is particularly true when the subject runs to large bureaucracies, which often serve to diffuse responsibility. A particularly fine example came to me today in Hunter Rawlings' article at the Washington Post in which he demands we stop treating college like a "commodity". What does he mean by this? He apparently is quite offended that people have started looking at the obscene tuitions charged by universities, and their ceaseless upward march, with some deciding that perhaps college isn't really worth it for everyone:

First, most everyone now evaluates college in purely economic terms, thus reducing it to a commodity like a car or a house. How much does the average English major at college X earn 18 months after graduation? What is the average debt of college Y’s alumni? How much does it cost to attend college Z, and is it worth it? How much more does the “average” college grad earn over a lifetime than someone with only a high school degree? (The current number appears to be about $1 million.)  There is now a cottage industry built around such data.

The rest of his essay is given to homilies about students getting out what effort they apply into it; he does make some valid points there, as in

If colleges are responsible for outcomes, then students can feel entitled to classes that do not push them too hard, to high grades and to material that does not challenge their assumptions or make them uncomfortable. Hence colleges too often cater to student demands for trigger warnings, “safe rooms,” and canceled commencement speakers. When rating colleges, as everyone from the president to weekly magazines insist on doing nowadays, people use performance measures such as graduation rates and time to degree as though those figures depended entirely upon the colleges and not at all upon the students.

The insane costs of college certainly would seem to push for a cosseted demographic; trigger warnings and all the other panic-stricken nonsense of modern academia are nothing if not an extreme example of demands the world bend to the individual rather than the individual develop resilience. Yet at the same time, he never really bothers trying to answer critics' charges head-on that the costs of college have become untethered from their economic benefits. It is simply a question we're not allowed to ask.  

Bankruptcy, The Key To Solving The Student Loan Debt Crisis

Yesterday's piece on Lee Siegel's narcissistic views about money was by no means unique, as Bre Payton at The Federalist rightly had similarly contemptuous things to say about Siegel's behavior. But I wanted to take a moment and address a remark I see frequently repeated: "popularizing student loan fraud certainly won’t bring about the change he says he’s hoping for", and a section header that reads, "Refusing to Pay Won't Improve Higher Education". I think this is wrong for some very basic reasons.

First, it is largely impossible to discharge student loan debt through normal bankruptcy. This has several unfortunate side effects:

1. It makes such loans especially attractive to banks, who are all but guaranteed repayment.
2. It means banks need to do far less due diligence on the loans than other forms of debt.
3. It adds to the tsunami of money entering universities, providing no incentives to reduce actual costs.

 The straightforward way to deal with college costs is to restore student loans as ordinary debt for bankruptcy purposes. This will have three salutary effects:

1. It will allow those under crippling levels of debt to escape through established legal means.
2. It will force banks to perform due diligence on institutions, degree programs, and students prior to writing loans based on prior loss experience. Want to go into six figures of debt to get a degree in puppetry or gender studies? Maybe you need to ask your rich aunt about that.
3. Finally, as banks turn off the money spigot holding up the college-industrial complex, universities will need to rationalize their degree programs and overhead to fit with the new market realities.

And the last point is the most important one. For all the money roaring into colleges these days, it's unclear what students receive in exchange for exponentially increasing tuition. But we have a pretty good idea about what universities are doing with it, and it's not adding new instructors: mostly, it appears they're engaged in bureaucratic empire building, with administrative staff positions growing more than twice as fast as student populations.

But critics say the unrelenting addition of administrators and professional staffs can’t help but to have driven this steep increase.

At the very least, they say, the continued hiring of nonacademic employees belies university presidents’ insistence that they are doing everything they can to improve efficiency and hold down costs.

“It’s a lie. It’s a lie. It’s a lie,” said Richard Vedder, an economist and director of the Center for College Affordability and Productivity.

“I wouldn’t buy a used car from a university president,” said Vedder. “They’ll say, ‘We’re making moves to cut costs,’ and mention something about energy-efficient lightbulbs, and ignore the new assistant to the assistant to the associate vice provost they just hired.”

This is exactly the sort of  thinking that drives never-ending tuition hikes: with no need to think about costs, colleges don't. Absent people walking away from their product (my second point above), there can be no rationalization; hitting them where it hurts, in their wallet, is the only way this will change.

Please note I am in no way advocating bankruptcy as a desirable end; the sanctity of contracted debt is important. Siegel, particularly, stands out as an entitled mooch. But many young people have amassed huge debts in service to universities that cavalierly ignore the burdens they inflict. For them, and for future generations, it's time to restore some sanity.

Update: Scott Alexander has a fun metaphor for the current situation, likening it to Dutch tulip mania with the added twist of subsidy. He also goes in to review what medical school looks like in Ireland vs. the US; in the US, you have to get through an undergraduate degree of some sort prior to going to medical school, but in Ireland it's treated as a sort of trade school, which anyone may enter upon graduation from high school. The US approach has some awful side effects:

Americans take eight years to become doctors. Irishmen can do it in four, and achieve the same result. Each year of higher education at a good school – let’s say an Ivy, doctors don’t study at Podunk Community College – costs about $50,000. So American medical students are paying an extra $200,000 for…what?

Remember, a modest amount of the current health care crisis is caused by doctors’ crippling level of debt. Socially responsible doctors often consider less lucrative careers helping the needy, right up until the bill comes due from their education and they realize they have to make a lot of money right now. We took one look at that problem and said “You know, let’s make doctors pay an extra $200,000 for no reason.”

The Narcissist Defaults: Sockpuppeteer Lee Siegel's Bankruptcy Melodrama

Lee Siegel, noted as a sockpuppeteer while participating in comment forums in his own articles on The New Republic, has an absurdly long essay at the New York Times on "Why I Defaulted On My Student Loans". My initial thoughts were that college debt is crushing young people, and amounts to yet another credit bubble, so we have that to look forward to; bankruptcy, while unpleasant and carrying real social stigmas and legal penalties, is a better option than carrying unsustainable debt indefinitely.

But then I read Scott Greenfield's response. "It may not be entirely clear from his rant that he’s no kid," he opens, "but the same age as me.  That being so, I call bullshit.  Siegel is full of crap and playing his audience for fools." Siegel starts his university career at "a small private college" but later is forced by circumstances to switch to a presumably less prestigious public university. The horror!

It’s not that there wasn’t a college for Siegel, but that Siegel was too special for a college he could afford. “Because I thought I deserved better.” Deserved, as in he was owed, he was entitled.  It was his right to have whatever he thought he deserved.

And, wait, if he's really that old, just how expensive could his stay through college have been?

 There was no “crippling debt,” as one sees today. College tuition at the University of Pennsylvania in 1975 was $3,430. Per year. In 2014 dollars, that comes out to $15,401.89.  Still want to cry Siegel a river?

Lee Siegel is a deadbeat.  It’s not because of any faux contention of moral reprehensibility, but a perverted self-delusion of narcissism and entitlement.  What he lacks is integrity, and no college, at any price, can teach him that.

Indeed.