Elizabeth Warren’s Plan to Eliminate Student Debt Is Worse Than You Think

From FEE.org (May 3):

Politicians Competing to Offer the Most "Free" Stuff

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Presidential candidates and campaigns have been offering “a chicken in every pot” for at least 90 years now, but this election cycle seems to be all about offering more “free” stuff than the other candidates. Some have even gone so far as to claim it’s not a problem that the government prints money to cover such things, as if the concept of Modern Monetary Theory (MMT, or, more accurately, Mindless Magical Thinking) makes it okay. This is beyond the scope of this discussion but is more than adequately covered here, here, here, here, here, and here.

One point relevant to this discussion is that MMT is based on the premise that government can allocate resources more efficiently than the alternative had their exercise of monopoly power over the currency not taken place—a premise without a single example in all of human history.

The latest salvo in the Free Stuff Wars comes from Elizabeth Warren and her plan to cancel (most) student loans and offer free college to everyone. Some have even suggested, most notably the Levy Institute at Bard College (affiliated with self-described socialist Joseph Stiglitz), that such a plan would “super-charge the economy.” The premise, as we shall see, is absurd on its face. Surely, this is an effective way to woo millennials with college debt. As George Bernard Shaw noted, “A government which robs Peter to pay Paul can always count on the support of Paul,” but that hardly makes it a sound idea economically.

How Did We Get Here?

There are a number of reasons college debt has ballooned, and understanding them is key to determining how best to address the “problem.” The realities haven’t changed since Thomas Sowell wrote on these topics more than a decade ago.

First, there’s simply supply and demand. According to the National Center for Education Statistics, enrollment in all Title IV institutions, while down somewhat in the post-recession period (attributed to lower birth rates), is still up 36.3 percent from 1995 levels. Over the same period, the percentage of the population with a college degree has risen from 20.2 percent for women and 26 percent for men to 35.3 percent for women and 34.6 percent for men.

Today, nearly 70 percent of recent high school graduates are enrolled in college. Unsurprisingly, tuition and fees have skyrocketed. The powers that be have responded by throwing ever more money at the problem.

Unfortunately, that has only made the problem worse. As economists David Lucca, Taylor Nadauld, and Karen Shen found, roughly 60 cents of every dollar in federal credit expansion for tuition goes only to increasing tuition. No wonder spending on higher education in the US already exceeds that of many countries with supposedly “free” college.

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In addition, there are already no less than 13 student loan forgiveness programs already in effect, most of which require nominal payments for 10 to 20 years before any balance is forgiven (a major disincentive to balance reduction). The New York Times recently provided a perfect example, citing the case of Samantha and Justin Morgan, who are on an “income-based” repayment plan and will see their loan balance continually rise until the balance is ultimately forgiven. You can’t significantly increase loan outlays, implement policies that hinder repayment, and then honestly act surprised that balances soar.

Who Reaps the Benefits?

Elizabeth Warren’s plan has been fairly described as a “bailout for the elite,” as the top 25 percent of households by income hold almost half of all student debt and as the cost would fall on all taxpayers when about two-thirds of American adults have no college degree, not to mention the 3-in-10 students who leave college debt-free (if you planned ahead or stepped up and paid your debt off, this scheme is a slap in the face).

But, as the Lucca-Nadlaud-Shen study makes clear, the real beneficiaries are the educational institutions that enjoy the benefit of more money being added to the system without a change in supply.  [read more]

Just another example of the Left playing Santa Clause and then the “presents” vaporize. They are conning the college students during and after college.