TANSTAAFL

There Ain't No Such Thing As A Free Lunch

          I started college at Ole Miss in September of 1970, and remember going to the old gym on campus for registration and class sign up and fee processing.  I had a voucher from the Ole Miss band for $50 per semester scholarship and signed up for 18 hours of classes for my first semester.  My advisor had already warned me that music majors needed to take 18-20 hours per semester if a degree in 4 years was the goal. I remember the total bill that day for tuition was $320, and after my scholarship was deducted, I wrote one of my parents’ checks for $270 - yes it was from student loan money - in order to begin classes the following week.  My parents had paid for the meal plan and dorm room earlier, and I think the total expense for my first year was around $3000, and yes, I had to borrow a significant amount of that to continue my education. I signed the application and my parents handled the money to make sure it went to the right places at the right time.  I was in no way offended by this arrangement because I was aware of my limited financial experience.

     After graduation, I immediately enrolled in grad school to work on a master’s degree, and yes, I borrowed much of the money to pay for that over the next 3 summers. My parents were no longer willing to serve as my financial resource officers, so I had taken over the responsibility by this time.  I was by then teaching in what was designated as a low-income area - that perfectly described the area and my income at the time - so I got to subtract a small percentage each year from the amount I owed. My first salary in the teaching field was the princely sum of $9,000 per year (the supplement for marching band was included), and there wasn’t much left over for paying student loans, so I was assessed payments of $35 per month for what amounted to the remainder of my natural life.  Fortunately, as time and my educational level improved my yearly salary, the payments for student loans remained close to the same and became almost manageable, even with the added expense of the money borrowed for more degrees.  I was also learning an important life lesson in finance; no matter the BOGO or no down payment or lack of up-front fees; There Ain’t No Such Thing As A Free Lunch.

     By the time 2010 had rolled around, the tuition expense for a 4-year public university had risen from the $3000 or so per year in 1970 and was, according to national averages, about $7600 per year.  In 2024, that average was about $10,600.  Higher but still not unreasonable.  For those that complain about the “high cost of college,” it may be that you are looking at the wrong institutions, have unrealistic expectations or have forgotten the money borrowed will eventually have to be repaid. The object of a college degree, once you got past all the learning for learning’s sake and self-improvement and all that stuff, is to make more money at whatever you had decided to do that required a college degree in the first place, so it was pretty easy for me to think of student loans as an investment. Unfortunately for many students two seismic events collided in the world of education that, taken together, verified once again the old adage about good intentions and the construction of the road to hell.  

     The first unfortunate event was the insistence, from well-intentioned educators that should have known better and politicians that really didn’t, that every student should go to college. That’s a lot like saying every day, regardless of season or circumstance, is going to be warm and sunny with little bunnies hopping in the idyllic sylvan woodland by the babbling brook and was and is nothing but a deliberate falsehood that assumed that all children WANT to succeed educationally at high levels and will put in the effort to do so. That doesn’t mean they can’t learn; it means they don’t care to learn or don’t learn in the ways we expected them to. Some of the smartest people I know never finished high school. Some of the stupidest people I know have college degrees - some of them have several. My observation is that many college degrees are obtained through a dogged persistence as much as through intelligence, and that the great bell curve of life tells us that not everyone is suited for the same outcome, thank the Lord, and the great distribution of gifts and challenges to individuals across the spectrum of that curve might be ignored, but will not go away. As a corollary to that statement, I would add that the longer facts are ignored the steeper the price that will ultimately come due.

     The second unfortunate event was President Obama’s decision to “cut out the middleman” and eliminate the role of private lenders and give the Federal government the authority to assume responsibility for collecting and issuing student loans for education. His reasoning was to use the $68 billion or so the program would make to help pay for part of Obamacare. Instead, the Congressional Budget Office says the program expenses quickly grew exponentially, primarily due to lax requirements about the availability and the amounts of money loaned and is costing US taxpayers billions each year. In what many later called one of the greatest bait and switch schemes ever, the USDOE replaced private lenders and became responsible for the great majority of student loans.  Many politicians attempt to paint the student loan issue as one where unsuspecting students are caught in a financial vise due to the rising costs of a college education. This is patently false and a political misdirection tactic.  In 2010, for example, the average cost of tuition per year at a 4-year public institution was $7605.  In 2024, that average had risen to $10,662 per year.  An increase, to be sure, but not the crushing debt load that many claim it to be. It is true that costs for tuition at private colleges can be as much as 4 times the average per year, but private colleges, much like clothing and transportation, are choices and not requirements. I might also note that if students are borrowing money for tuition and living expenses and food and housing simply because they can attend classes and never have to work, then parents are failing in teaching personal responsibility, frugality and a positive work ethic - thereby ensuring another losing combination in the great game of life regardless of what degree you may or may not have.  Add those increased loan amounts to a failure to complete degree requirements and there’s the crux of the student loan crisis for many.

     Let’s look for a moment at a few figures. In 2010, the total amount of student loans was $590,000,000,000. Today that figure is $1.75 trillion, and the Federal Reserve in 2022 found more than 28% of those that owe student loans and completed less than an associate degree are behind in payments. For those who completed an associate degree program the delinquency rate is 19%, students that completed a bachelor’s degree have a delinquency rate of 7%, and 6% for those with a graduate degree. Another couple of bad news tidbits is that student loan debt now outweighs credit card and mortgage debts, and student loan debt may not be removed through bankruptcy.  Delinquency rates for student loans in 2008, before the loan program was federalized, were around 6%.  Since the 2010 federalization of the student loan program, the number of borrowers more than doubled and the average size of the loans increased significantly. Politicians blamed increased tuition costs for the larger loan amounts, but this does not appear to be the biggest part of the whole story. It would seem that requirements for obtaining student loans for college were significantly less stringent with the government in charge than with private lenders that took the time to make sure the money they loaned would be spent to further a student’s education rather than improve their immediate lifestyle. One study by Temple University found that almost 40% of students that were approved for student loans in the 2011-12 school year never completed a degree. I won’t try to make the case that private lenders would always make better decisions about which students would get what size educational loans, but I will tell you that if I were lending money to someone for college I would do what I could to make sure first of all that the need was legitimate, the amount was commensurate and the degree, when achieved, would result in an ability to repay. Missing those goals by 10% might be counted as acceptable business losses but missing by 40% is an unfortunate combination of negligence on the part of those responsible for approval in the application process and an apparent lack of any business acumen or common sense at all from the approvers, and once again underscores the fact that there is no problem anywhere that a government solution cannot make worse.

     Loan forgiveness by President Biden, in spite of an adverse Supreme Court ruling on one of his initiatives, has so far totaled $167 billion. Around 4.5 million people have benefitted from these actions. The Supreme Court, in its ruling, essentially said that the Secretary of Education did not possess the power and authority to forgive student loans through the HEROES Act in place of Congress unless he was specifically given the power to do so by Congress itself. His job description, in spite of being a Cabinet level position, does not include that particular verbiage.  There are several other avenues for loan forgiveness that include the Income Driven Repayment Plan, the SAVE Plan, Public Service Loan Forgiveness if you work for a qualifying non-profit company, Teacher Loan Forgiveness for teachers that work in low income areas or in educational service agencies, Nurse Corps Repayment Program for nurses in underserved communities, the Closed School Discharge program for students enrolled in schools that closed while they were in attendance and the Student Loan Deferment Program that may allow temporary reduction or elimination of some student loan debt. The President’s most recent initiative includes plans to forgive $20,000 of “runaway interest” for about 25 million borrowers with more debt than their original loan, enrollment in the Public Service Loan Forgiveness and the Saving on a Valuable Education plan for those not already enrolled, forgiveness for borrowers with at least 20 years of repayment history, forgiveness for students that attended a “low financial value program” in institutions that cheated or exploited students and for borrowers that experienced “financial hardship” that prevents them from repaying loans.  “Financial Hardship” has not yet been defined by the Department of Education, and will be presumably assigned to the same bureaucratic whiz kids that oversaw the original DOE loan application process.  Expect bad news for taxpayers.

     So why do some people think it's a good idea to forgive student loan debt at all?  One group believes forgiving student loan debt will reduce the racial and economic inequality caused by student debt, and thereby increase home ownership and the creation of new small businesses. Others believe that paying off student loans would be unfair to those who have already paid off their loans or even those that did not go to college and don’t have student loans or even those that went to a tech school, junior college or less expensive 4-year public university and worked at the same time and didn’t incur an enormous amount of student loan debt in the first place. Other opponents believe paying off some student loans but not others would lessen the incentive for students to go to college at all. Bernie Sanders and Chuck Schumer believe the government should pay off all $1.75 trillion and eliminate all student loan debt, but most believe that’s a Socialist utopian idea whose time has not yet come.  Using that logic, the next step might be proposals to reduce economic inequality caused by credit card debt, mortgage debt, medical debt, title pawn debt and unpaid rent, but maybe those proposals are waiting for the next election cycle.  Perhaps one positive lesson to be learned from the whole kerfuffle is the government has no business in the student loan business at all and has proven that once again through their inept creation, administration and eventual taxpayer funded solution to the problems they themselves generated is yet another example of governmental ineptitude.  If only this were an isolated incident, perhaps it wouldn’t be so frustrating.

     Below are the unemployment rates that correspond to educational achievement (or the lack of it.):

No high school diploma 11.7% bachelor’s degree 5.5%

HS Diploma 9% master’s degree 4.1%

Some college 8.3% Professional 3.1%

Associate degree 7.1% Doctorate 2.5%

     Imagine being one of those people that borrowed money at every opportunity, accumulated an enormous total student loan debt, graduated and discovered they had chosen the wrong degree or were otherwise unemployable. Remember that bell curve I warned you about earlier? This is just another reminder that 50% of every profession and 50% in every degree program graduated in the bottom half of their respective class. Holding a degree does not guarantee you will be employed either at all, or for long. Borrowing and not graduating does not mean you no longer owe the money, just that the difficulty level of repayment just went way up. Poor decisions have consequences, too.

     Most student loan debt has been accumulated by those between the ages of 25 - 55, and Black students owe 39% of that debt, white students 30.5% and Hispanic students 30%. Figures also show that about 86% of Black students going to college take out loans and 68% of whites do so. Degree completion rates by race since 2010 are Asians 63.2%, Whites 62%, Hispanics 45.8% and Blacks 38%.

     It might also be important to understand that more than 80% of Americans have no student loan debt at all. Some have paid off the loans they made, some never made loans at all to pay for their education and some never went to college at all.  Of additional interest is that 60% of all student debt has been incurred by families that make more than $74K per year, and that if equity is to be a consideration at all in forgiveness, the 20% of loans in the bottom 40% of income might take precedence over higher earners.  Studies have shown that graduate students taking out student loans are about 25% of all borrowers but owe almost 50% of the total student loan debt.  The average amount of student loan debt for a bachelor’s degree is $29,000, over $69,000 for an MBA, $71,000 for a master’s degree, $145,500 for a law degree and $201,490 for a medical doctorate. Don’t forget the students that for whatever reason accumulated large student loan debts and never graduated. That debt did not disappear because they didn’t meet degree requirements, and that’s 28% of borrowers since 2010.      

     Another important consideration is that one out of every three adults under the age of 30 owe 34% of all student loan debt, and that in an election year historical precedent has shown us that incumbents from either party will always find creative ways to buy votes with taxpayer money.  It’s a well-established and unfortunate American tradition and that the current President’s re-election committee is enthusiastically following that tradition should be no surprise to anyone.  Incumbents from both parties have propagated these wonderfully creative con games where voters are encouraged to vote for a particular candidate by the temptation of receiving back some of their own money.

     My personal determination of whether or not someone supports loan forgiveness is based on the probability of whether or not you 1) currently owe significant student loan debt, 2) are closely related to someone who does and/or 3) believe that Socialist policies are a good thing.  My biggest fear, on the other hand, is that the financial irresponsibility of the Federal student loan program was not an accident but engineered as just another step in the downfall of the capitalist system and the implementation of Socialism through yet another failed program whose primary goal is the redistribution of wealth using taxpayer funds. Remember when you support Socialism in any of its forms that politicians and Socialists only give away other people’s money, and only after they have taken what they see as their fair share, and you get what little is left over. Think TANSTAAFL. For goodness sake, just think.