Miscellany Monopolization Uncategorized

Don’t Cancel Student Debt; Redistribute It

A culture that does not understand, let alone value the innerness of things is going to have an ambivalent relationship with learning, especially elite learning. For such a culture—our culture—the question what is it for? will forever trouble the educator’s sleep, or, more to the point, the sleep of government officials who are asked to allocate funding for higher education and the voters who are asked to vote for those government officials.

Add into the mix the fact that the politics of the academy are not broadly shared by the electorate at large, and I see in fully-government-funded higher education nothing but: danger. The danger that America’s great system of higher education will starve and wither.

Fortunately, and no doubt because of our cultural ambivalence to education, the funding system we currently have in place provides some protection. The student loan system taxes those who have actually worshipped at the altar of education to pay for its survival. It is, in a sense, a regime of forced alumni giving, with schools asking students to borrow against the future cash flows that become student loan payments so that schools can take this giving up front in lump sums.

The effect is to tell those who wonder what is it for?: we don’t need you. We will pay for this system ourselves.

To be sure, it is not really the students who are saying this, at least not entirely. It is the schools that have been able to decide, within certain limits, just how much funding they receive, because schools have a great deal of market power with respect to students.

Part of that power (this part not, technically, market power, but rather scarcity power) is due to students’ fairly inelastic demand for education: they rightly place great value on education, and are willing to pay a lot for it. But lots of the schools’ power is also due to students’ lack of understanding of the meaning of the large amounts of debt they take on, allowing schools to raise tuition levels without fear of alienating their clients. And more power still comes from schools’ reputations, which are so strong that many schools can raise tuition levels without losing even those students who understand the meaning of long-term indebtedness.

Insidious, perhaps.

But it is thanks to this power of schools to choose their own funding levels that America has the greatest, wealthiest system of higher education in the world. I do not think that an America in which student debt were cancelled, and the student loan funding system for higher education replaced by one of full government funding for higher education, would be anywhere near so wealthy, or so excellent.

It is easy for a graduate pushing for debt cancellation to forget that 60% of Americans do not have a college degree. And many more Americans who do are still troubled by the question what for? Why should they be expected to vote the levels of funding that schools have been able to arrogate to themselves through the current student loan system? The answer is, they won’t.

True, other developed countries that have a public funding model still manage to funnel a lot of cash to schools. But America is different. Remember: each and every developed country in Europe and Asia has a concept of culture.

We have no such thing here in the United States.

Each of those European and Asian countries descends from kingdoms and empires that claimed power by divine right, which is to say, claimed to have a direct connection to the innerness of things. Though many have mellowed and democratized, or at least acknowledged the moral superiority of democracy, they all retain the notion that the state has inner meaning. The expression of the state’s inner meaning is culture, and culture is realized through elite education. The notion that the state should pay for education is not, therefore, subject to question in those countries in the way that it is here, where the state’s only meaning is out-in-the-world practical: to make us happy.

All this is not to say that the student loan system doesn’t need reform. It does. If we correctly understand the system to be a tax on the educated, then we should reasonably ask that it be progressive: that the rich should subsidize the poor.

The current system does that, but only very little. At present, borrowers can sign up for income-based repayment, which uses the federal government’s general tax revenues to reduce the student debt burden of poor students who end up earning less after graduation. To the extent that federal taxation is mildly progressive, income-based repayment is itself mildly progressive.

But real progressivity in the student loan system would mean something different entirely. What we should demand is that rich students—or those who go on to become rich—subsidize poor students and those who go on to be poor. Thus the redistribution associated with progressivity should remain “in the family” of the educated, and be much more extreme than it is today.

Today, those from rich families pay the sticker price for tuition up front and then are free of any further payment obligations to schools, no matter what heights their incomes happen to reach. By contrast, poor students fund themselves through loans, and unless they do well enough after graduation to pay off their loans in full, they go on income-based repayment and their repayment burden varies with income. If they make more, their payments go up, if less, they go down. Thus today, the student-loan system is progressive only with respect to poor students who don’t do well after graduation! The rich, by contrast, pay the equivalent of a flat tax. That’s not progressive.

Instead, we need all students, including the rich, to make payments to fund education over their entire working lives, and those payments need to be adjusted based on income, to the end of redistributing wealth from the most successful to the least.

One way to do that would be vastly to increase tuition bills, so that even rich students must take out loans to fund their education. Then all students would go on income-based repayment after graduation, and the income-based repayment schedules could be used massively to redistribute from the most successful of the educated to the least. The poorest, least successful graduates would end up with very low monthly payments, or immediate debt forgiveness, and the richest and most successful would end up with very high monthly payments—right into the millions of dollars per month, if necessary. Think of it, again, as forced alumni giving, in which those who can give more, do.

The introduction of increasingly generous income-based repayment terms over the past couple of decades signals that the student loan system is already moving slowly in this direction.

Instead of calling for student debt cancellation, and placing politically-vulnerable, inescapably elitist institutions at the mercy of democratic majorities that are not sure they want them, let’s keep education in the family—but make sure that anyone who wants to join, can join, and that the richest graduates pay their way.

[Note: Given that the New York Times doesn’t have to disclose its interest in smashing Google or Facebook whenever it writes about the antitrust cases against them, maybe I don’t need to disclose my own competitive interests when I write about them. But I am an educator.]