What Is Good for Students Might Be Bad for Taxpayers

The federal Department of Education was created in 1979 by Jimmy Carter and his Democratic-controlled Congress. It was established by the Department of Education Organization Act of 1979 that split the Department of Health, Education, and Welfare into the departments of Education, and Health and Human Services. It began operation in May 1980.

Conservatives generally opposed the creation of this new department and put pressure on Republican presidential candidate Ronald Reagan to abolish the department should he be elected. “Welfare and education are two functions that should be primarily carried out at the state and local levels,” said Reagan. The Republican Party platform of 1980 called for the department’s elimination.

Reagan was elected, served eight years as president, and died in 2004, but — thanks to Republicans — the Department of Education still lives.

The Republican Party platform of 1996 likewise called for the elimination of the Department of Education: “The federal government has no constitutional authority to be involved in school curricula or to control jobs in the work place. That is why we will abolish the Department of Education, end federal meddling in our schools, and promote family choice at all levels of learning.”

Yet federal spending on education tremendously increased during the Republican presidency of George W. Bush — even though he had a Republican majority in both Houses of Congress for more than four years.

During the Obama presidency, some Republicans again called for eliminating the Department of Education. Michelle Bachmann, a Republican candidate for president in 2012, even bluntly said, “I would go over to the Department of Education, I’d turn off the lights, I would lock the door, and I would send all the money back to the states and localities.”

Although a few Republican candidates — including Donald Trump — talked about eliminating or cutting the budget of the Department of Education during the presidential election of 2016, doing so is now not even a minor concern of conservatives.

In fact, some conservatives are ardent defenders of federal involvement in education.

A case in point is the recent article “Why Student Loans Are Actually a Good Thing,” by Jason D. Delisle, a resident fellow at the American Enterprise Institute (AEI), “where he works on higher education financing with an emphasis on student loan programs.” I should note that Delisle’s work on Capitol Hill as a staffer and an analyst “led him to study the history and mechanics of federal student loans and other financial aid policies and to recommend budget process reforms for rules covering financial risk in government programs — including working on fair-value accounting for loan programs.” Before joining AEI, Delisle “served as director of the Federal Education Budget Project at New America, where he worked to improve the quality of public information on federal funding for education and the support of well-targeted federal education policies.” He also served as “an informal adviser on higher education reform for Governor Jeb Bush’s 2016 presidential campaign.”

Both progressives and conservatives “imply that student debt — and the federal loan program in particular — are fundamentally flawed,” says Delisle. But he believes that the evidence tells us “something different,” that “the use of student loans helps students earn a degree and pay down their debt — and that some students would benefit from taking out more loans.” The studies tell us that “the original rationale for government-issued student loans is sound.”

And what is that rationale?

The private market is unlikely to provide students with loans at affordable terms for a number of reasons (i.e. they can’t be collateralized, information about creditworthiness is hard to obtain), yet the education that the loans make possible tends to be a good financial bet for students…. Private lenders won’t take that risk, however, at least not on a large scale at affordable terms for students. Absent a government program, then, a lot of good educational investments won’t ever be made.

Although Delisle acknowledges that student loans aren’t “always the right approach to paying for a higher education” and that “more debt” is not “always better than less,” policymakers should “exercise caution when pursuing student loan reforms” because “policies that proceed from the belief that student debt is always harmful risk leaving students worse off in the end.”

So, are “students … usually better off with loans than without them, everything else being equal”?

According to the latest student loan debt statistics for 2020,

  • There are 45 million borrowers who collectively owe nearly $1.6 trillion in student loan debt in the U.S.
  • Student loan debt is now the second-highest consumer-debt category — behind only mortgage debt — and higher than both credit cards and auto loans.

Sixty-six percent of borrowers who graduated from public colleges have an average student loan debt of $25,500. Seventy-five percent of borrowers who graduated from private nonprofit colleges have an average student loan debt of $32,300. Eighty-eight percent of borrowers who graduated from for-profit colleges have an average student loan debt of $39,950.

No doubt some students are better off — if they got a degree in something other than sociology or gender studies and are able to land a good job and pay down their massive debt.

But whether student loans are good for students is not the issue. What is good for students might be bad for taxpayers.

Here are some statistics that are relevant for taxpayers:

  • More than 3.0 million student loan borrowers have student loan debt greater than $100,000, with approximately 800,000 of that total holding student loan debt greater than $200,000.
  • Student Loan Delinquency or Default Rate: 10.8 percent (90+ days delinquent)
  • Direct Loans – Cumulative in Default: $119.8 billion (5.5 million borrowers)
  • Direct Loan in Forbearance: $122.9 billion (2.8 million borrowers)
  • Student Loans in Deferment: $128.4 billion (3.6 million borrowers)

There are 1,139 borrowers who have received student loan forgiveness amounting to $71.9 million.

And according to recent studies,

  • 40 percent of borrowers may default on their student loans by 2023
  • 250,000 borrowers default on their federal student loans each quarter
  • It takes 19.4 years, on average, to pay off student loans

So, there is a darn good reason that “the private market is unlikely to provide students with loans at affordable terms.”

But it is not just taxpayers that federal student loans are bad for. They are also bad when it comes to the Constitution, limited government, the free market, and morality. The Constitution nowhere authorizes the federal government to issue student loans or have anything to do with education. Providing students with loans for education is an illegitimate purpose of government. Federal student loans subsidize one industry and distort the free market. And it is immoral to force some Americans to pay for the education of other Americans.


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