Democrats’ Student Loan Plan Versus Reality

Watching Democrat primary debates is an exercise in patience. Going in, you have to understand that you’re only going to hear one side of the story, you’re going to listen to candidates say things that make economists’ heads explode and you’re going to hear lots of plans to give away “free” stuff.

This year is proving to be worse than most because everyone on the stage with the exception of Bernie Sanders and Hillary Clinton appears to be doing little more than angling for a position in the Clinton Administration. In place of an honest debate we get a competition for the best brown-noser. Even Sanders and Clinton struggle to find places where they disagree, instead just racing to see who can be the better progressive.

And the race was on when it came to the issue of what to do about student loan debt.

Once again, they are correctly identifying the symptoms of the problem. Gov. Martin O’Malley said that we are “setting our kids with a lifetime of crushing debt.” Sen. Sanders  called the issue a “major crisis.” And Sec. Clinton was worried about the “40 million Americans” who are currently “struggling under this cumbersome, burdensome college debt.”

But they completely whiff on diagnosing the disease. Sky-high student debt levels is a symptom of two problems: soaring tuition and poor job prospects. The solution then has little to do with erasing student loan debt and everything to do with introducing ways to make college more affordable, improving the education students are receiving to make graduates more competitive, and cultivating the entry-level job market.

That stuff is hard. It involves structural changes to the current system of higher education, opening up the market to new players, and developing meaningful measures to allow students to choose schools. Neither college professors, who tend to skew liberal, nor college administrators, who rather enjoy being able to act like a cartel, nor the government, who would have to cede a measure of control, would be happy about any of the changes needed to bring innovation to the staid model of higher education. They prefer the calm (and the money) that come from the status quo. The word “disruption” tends to scare the crap out of them and is apparently only suitable for theoretical economics lectures.

And politicians prefer easy. Why reform a system and make political enemies along the way when you can simply find something new to tax, use the money to buy off a problem, and then call it a “free” solution? Take Bernie Sanders’ policy slate as an example: As of now his agenda is projected to come in with a price tax of around $18 trillion over the next decade, which he plans to pay for by raising taxes by around $6 trillion. Where does the other $12 trillion come in? Well, unless he finds the pot of gold at the end of the rainbow, it has to come from higher taxes on the middle class (which, coincidentally, is exactly where Denmark–Sanders’ favorite country–gets the money to pay for its welfare state).

Sadly, you’ll never get any of the Democrats to be so intellectually honest. Instead, they’ll keep dipping into the well of the financial transactions tax, which they apparently believe is bottomless. But even if Clinton and Sanders were able to make it all work. Even if Sanders was able to “make public colleges and universities tuition-free,” and Clinton was able to “enable anyone to go to a public college or university tuition free,” as they said during the debate, it’s a terrible idea.

Why? Because first and foremost it sends the message to colleges that not only do they not need to change or innovate, but it gives them the incentive to charge infinitely more for the same old product. As a college administrator, what incentive do I have to keep tuition low if I know that whatever price I charge my students that it will be completely covered by the federal government? If I don’t have to compete on price, you can bet I’m going to compete on quality, which in this case often means higher rock-climbing walls rather than more enthusiastic professors. That leads to spiraling tuition prices, all of which will be covered by ever-increasing federal subsidies, which means that neither Clinton nor Sanders can tell you exactly what their plans will cost, but more importantly can’t tell you what impact it will have on the quality of the education being offered.

If this is what passes for reform in the Democrat field then they are ideologically bankrupt. Worse, they threaten to leave our generation fiscally bankrupt as a result.