Indenturing Our Children
Student Loans Indenture Our Children; Governor Cuomo Becomes a Feudal Lord Over New York’s Student Serfs
By Dan Smith
Stories about young people saddled with loads of school debts are everywhere today. With almost $1.5 trillion of outstanding student loan debt, more than 44 million Americans have student loan debt. That means almost everyone knows someone who’s greatly burdened by such loans.
The burden is real. More than 11% of student loans are delinquent. As Pew Research has noted, “young college graduates with student loans are more likely than those without loans to have a second job and to report struggling financially.”
And student loans are demoralizing. Pew’s research also shows, “compared with young adults who don’t have student debt, student loan holders are less upbeat about the value of their degree.”
Must it be this way? Can government fix it? The answer to both questions is: NO!
Government can’t fix it. Government is the source of most of the problems, they need to STOP!
Debt is a Tool Which Needs to be Used Carefully
But let’s back up. Debt itself is not necessarily a bad thing. It can be a wonderful tool. A synonym for debt, ‘leverage,’ comes from physics and means a device which creates and focuses additional power in order to do work. And that’s what debt is—the ability to make an investment now and pay for it later when the benefits start to roll in.
But debt has obvious risks. The inability to repay debt and interest can cripple you financially. Historically, college almost always pays off: tuition costs were much lower and graduates mostly got good jobs to pay back their loans. But both ends of that deal have turned upside-down: good jobs are harder to come by and the tuition is so much higher today. And unlike most investments, you can’t get out of this one so easily—it’s almost impossible to get a student loan discharged in bankruptcy.
Borrowers are not happy with the choices they’ve made. Pew finds that, “only about half of student loan holders think the lifetime financial benefits of their bachelor’s degree outweigh the costs.” College used to be thought of as a tremendous investment. For many, that’s no longer the case. Our system has crushed that belief.
Perhaps worse, entrepreneurial activity has fallen. To a large extent, startups in the U.S. are driven by young people taking the chance to quit their jobs and pursue their ideas. Startups are the future of our economy. But debt-burdened young people are not in the financial position to take the chance of leaving their post-graduation jobs in order to put the ‘sweat equity’ into starting their own businesses. This is hurting their future. And it hurts the rest of us who might be missing out on the next Microsoft, Apple or Amazon.
And startup activity, while up recently, hit an all-time low in 2013. The number of startups always decline at the beginning of recessions, but they usually bounce back quickly (the out-of-work start their own companies). This time they didn’t, and many have cited student loan debt as a cause: NBC News, TED, CNBC, business.com, and many others.
Government ‘Solutions’ Are the Problem
Many progressive leaders are calling for loan forgiveness, where the federal or state governments forgive public loans or rework deals. This sounds nice and would certainly help those with outstanding loans, but there would be a crippling cost. The money must either come from taxpayers or financial institutions, or both. Or, in some cases it comes from the students through their time—the forgiveness comes only with the promise to work for government for ten years.
New York has created a law which they say will eliminate future student loans, the Excelsior Scholarship. It allows certain students to go to college for “free.” But that means that taxpayers must foot the bill. And there’s a catch: the students must agree to stay in New York post-graduation for the number of years they’re in school . . . or pay their tuition upon leaving the state.
That’s just New York’s new form of indentured servitude. It indentures students to the land, like serfs to the feudal lord, Governor Andrew Cuomo.
People should want to stay in New York because it’s fantastic, not because of some deal they made with the Devil when they were 18.
America already has a $20 trillion national debt and moreover we have $150+ trillion in obligations for which there is no known way for them to be repaid. Loading taxpayers up with trillions more by forgiving student loans will only exacerbate that problem. Forcing banks to write off loans would destroy many businesses today, and all the jobs they support. It would also make it much harder or even impossible for anyone to get a loan in the future—students most of all.
Solutions Only Come When Focused on the Root Cause
No, solutions don’t come by waving government’s magic wand. That’s black magic. Solutions arise by looking at and address the root causes. Key symptoms include:
- Rising tuitions – students must borrow more and more
- Diluted worth of a college education – ability to pay loans back gets diminished
- Easy access to loans and financial aid – drives up demand, drives up cost
These three things are highly interrelated and they point directly at the true root cause: government. Government’s programs to make loans more accessible and college more affordable sound wonderful, but have had horrible unintended consequences: they’ve made college much, much more expensive and diluted the value of a bachelor’s degree to the point where employers don’t value them nearly so much. So, students are borrowing more and having a tougher time paying it back. Study after study shows government’s role is direct and proportional.
The good news is that, despite the dropping value, college degrees are still worth it for many areas of study. The not-so-obvious solution to the problem is to get government out of the business of giving away or lending taxpayer money. And we shouldn’t be asking young people to make a four-to-ten year commitment post-college, when many can’t even choose and stick to a major.
In New York, that means ending Andrew Cuomo’s feudalistic Excelsior program. That program drives up tuition for other students, saddles taxpayers with yet more debt and taxes and make serfs out of our young people.
Making things “free” has never turned out to be so expensive. We must reverse that public policy choice if we hope to turn things around.