As anyone who’s walked the floor of the Consumer Electronics or International Auto Show will tell you, most of what’s demoed never sees the light of day. Software, electronics and car companies are notorious for floating designs, prototypes or leaked photos of products, services and features they never plan to release. Are they devious, deceptive masterminds? No. They simply want to gauge consumer demand, investor reaction, or consequences of a radical change. This is called “vaporware”. It’s here one day, then…POOF…it’s gone.
The same thing happens during political season. Vaporware policies are a free currency. It “buys” the kinds of voters a candidate wants to target. More important – it buys precious morsels of PR in a crowded field and media
hellscape landscape. Vaporware policies are often fantastic voyages of imagination, unbound by math or the brutal realities (or intentions) of implementation. They are not to be questioned too deeply, like Scientology or Crocs.
So far, Elizabeth Warren, Bernie Sanders and Andrew Yang lead the pack in policies that would tear the space-time continuum, if enacted. From Universal Basic Income to breaking up Facebook and Apple to single-payer healthcare, Thanos requires less suspension of disbelief.
Today, Let’s zoom in on Senator Elizabeth Warren’s vaporous college loan forgiveness plan.
I’ve done volumes on the future of education in Econovation, articles and a recent episode of The McFuture podcast. You can even check out my education predictions and outcomes here. Suffice it to say, I have legit reasons for thinking loan forgiveness is bad policy – even by vaporware standards.
Even so, there are points of agreement with conventional thinking:
- College costs are out of control
- Debt levels are inexcusable
- Quality and ROI of too many schools and degrees is questionable, at best
Where we diverge:
- Root causes of these problems
- College as the best path to future success
- Most effective solutions
- How much government intervention and financing is needed
Before I get into the problems with this proposal. I’ll concede it’s not all terrible.
There’s some truth to the idea that loan forgiveness could act as an economic stimulus. In other words, money that would have been re-paid directly to the government, which holds 92% of student debt, would instead circulate in the economy. The problem with this thinking is it’s not 1955. Back then, the vast majority of businesses were local. So money actually circulated in communities, creating jobs and tax revenues.
Today, most multiplier arguments are grossly overstated for political ends. The Fortune 500 represents almost 75% of GDP and they are GLOBAL. Multinational chains, foreign manufacturers and tax-sheltered e-commerce giants mean money doesn’t bounce around in communities. It almost immediately gets sopped up at some corporate headquarters and distributed to shareholders. Amazon, Domino’s and Zara get your money, not the local cobbler or repair shop.
The second argument made by Mrs. Warren is this will reduce inequality. Oh no, no, nooooooo…..
In fact, let’s start there…
7 reasons debt forgiveness is TERRIBLE policy
1. It robs the poor to pay the rich
Only 34% of Americans get a four year degree. Generally, those who do, earn hundreds of thousands more over the course of their lifetime. So debt forgiveness basically robs the bottom 66% to subsidize education for grads who will out-earn them. Oh, it gets worse. A whopping 40% of loans are for grad schools – to train high-earning MBA’s, PhDs, lawyers and doctors. Professionals who will out-earn us all! This is who the truckers, Lyft drivers and Kroger managers need to subsidize?? Is this a joke?? This policy creates inequality. You know, the thing these noble legislators pound on podiums about. Nicely played, “Progressive”. You almost got me. Thought you were here to help…
2. Thy killer is not thy savior
The main reason we’re in this mess in the first place is crony government intervention.
By creating Fannie Mae, the government unleashed unlimited debt by backing student loans. Basically, making unlimited lending risk-free. Colleges and banks would have been irresponsible not to sop up every last morsel for their shareholders. And boy did they. Through obscene tuition hikes and lots of guaranteed loans.
Under President Clinton, government doubled down on this terrible policy, making it illegal to default on student loans – no matter how unfair or onerous. Despite the fact individuals and companies can get out of every other kind of debt through bankruptcy. Banking and college lobby, SCORE!
When both policies were about to implode in 2010, government took over all private college debt. Problem solved? No. Taxpayers pay for idiocy.
Google the countless article already written about this. The only thing I’ll add is:
- College is already failing as a vehicle for generating success. Back out trade majors (engineering, medicine, finance, law) and top 10 or 20 schools and you have negative ROI on higher education.
- We have a $1 Trillion annual deficit. Total debt tops $22 Trillion. Social security is about to go insolvent as baby boomers – and soon, Gen-Xers retire. We have a shrinking population and tax base to fund EXISTING PROGRAMS.
- Anyone who tells you we can fund new programs, without massively raising taxes on EVERYBODY, is a cynical liar. Confiscating all assets from every US billionaire wouldn’t cover three quarters of one year’s budget.
We still have freewill, right?? School is still a choice. I know victimhood is fashionable, but it’s also an excuse. To have the federal government spend $640 billion (nearly $2,000 per person) for people who voluntarily chose to take loans is an irresponsible moral hazard. They weren’t ‘violated by the system’. They made terrible assumptions of better career prospects and unfortunately, learned a brutal lesson. The same lesson learned by millions before them, who paid off worthless degrees from subpar schools. Should we compensate those historical ‘victims’ too? Luckily, there’s a better way to fix this, justly. Keep reading.
5. We, the people, have the power to change this
Just like degrees are a choice, employers can choose whether to mandate them or not. Since I proposed companies eliminate degrees as a job requirement, major companies like Apple and Google did just that. There’s more we can do.
We, as individuals have unlimited education and communication tools at our fingertips to make ourselves qualified, just not certified – a piece of parchment paper with your name and branded college logo. We are one small decision away from eliminating employer demand, which creates this ridiculous certification arms race in the first place.
6. Our saviors don’t believe it, either
7. Distorting Education & Job Markets
Lucky for us we have real ways to solve college debt that align everyone’s incentives, drive down costs & eliminate college debt. Here are some of them. I broke them into citizen and government solutions.
- Reverse 90’s-era ban on student loan defaults. This is an undo instead of pile-on. It un-lobbies the student loan bankruptcy exemption. This creates a real mechanism to eliminate burdensome college debt, minus the moral hazard of forgiveness at the expense of poor people. Bankruptcy carries both benefits and consequences, as it should.
- Phase out Sallie & Freddie; replace them with grants for those with financial need.
- Pre-negotiate tuition and tuition hikes with any schools accepting public grants, loans or research funds. Constrain this beast.
- Implement the 10/10 (or 15/15) plan I proposed and Presidential candidate Andrew Yang picked up on. This gives qualifying students money for college that they must re-pay at a fixed percentage for a fixed number of years, once they start working. Might be 10% for 10 years or a bit higher. I’d have to get the data to crunch the exact numbers. That way, incentives are aligned. If employment levels and salaries drop, payments drop, too. And schools become accountable for creating commercially viable graduates. Depending on the final cost, I could also be convinced to apply it retroactively to a segment of current borrowers, giving them credit for “time served” even though their borrowing pre-dated the program.
- Promote and facilitate the use of trade, vocational schools and apprenticeships across all job types.
- We have over three million unfilled, high-paying skilled jobs. Fill them! Then, let’s revisit the tuition problem. I bet a huge chunk of it disappears. That means we need to do a better job promoting and glamorizing this work as dignified, contributory and lucrative. The same we glamorized pumping out surplus media drivel.
- Employers, stop requiring degrees! Hire for talent and skills, instead. The tools to replace degrees are out there. I wrote a guide on what employees, executives and private companies can do.
- Empower yourselves. The tools are out there to be and do anything you want, as long as we follow the Universal Success Formula.