Student Debt Cancellation: Paying For Your Neighbors’ College Education

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Hubwonk host Joe Selvaggi talks with education financing expert Mark Kantrowitz about the $1.6 trillion in U.S. public student debt – who owes it, who stands to benefit from the Biden administration’s recent promise for across-the-board student debt reductions, and what strategies are available to target only those most in need.

Guest:

Mark Kantrowitz is a nationally-recognized expert on student financial aid, scholarships and student loans. His mission is to deliver practical information, advice and tools to students and their families so they can make informed decisions about planning and paying for college. Mark writes extensively about student financial aid policy, and has testified before Congress and federal and state agencies about student aid. He has been quoted in more than 10,000 newspaper and magazine articles, and has been published in The New York Times, Wall Street Journal, Washington Post, Reuters, Huffington Post, U.S. News & World Report, Money Magazine, Bottom Line/Personal, Forbes, Newsweek and Time. He was named a Money Hero by Money Magazine, and is the author of five bestselling books, including How to Appeal for More College Financial Aid, Twisdoms about Paying for College, Filing the FAFSA and Secrets to Winning a Scholarship. Mark is Publisher of PrivateStudentLoans.guru, a web site that provides students with smart borrowing tips about private student loans. He has previously been employed at Just Research, the MIT Artificial Intelligence Laboratory, Bitstream Inc. and the Planning Research Corporation, and is President of Cerebly, Inc. (formerly MK Consulting, Inc.), a consulting firm focused on computer science, artificial intelligence, and statistical and policy analysis. He is ABD on a PhD in computer science from Carnegie Mellon University (CMU), earned a Bachelor of Science in mathematics and philosophy from MIT, and a Master of Science degree in computer science from CMU. He is also an alumnus of the Research Science Institute program established by Admiral H. G. Rickover.

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Joe Selvaggi:

This is Hubwonk I’m Joe Selvaggi.

Joe Selvaggi:

Welcome to Hubwonk, a podcast of Pioneer Institute, a think tank in Boston. Americans owe $1.6 trillion in public student debt. President Biden, both in campaign promises and in a more recent comment is considering some student debt forgiveness, either by executive fiat or through a coordinated act of Congress. Though framed as a helping hand for those saddled, with crushing debt and for whom such debt imposes stifling, long-term burdens, any such forgiveness could be regarded as largely regressive heaping largesse on those with the most education debt at the expense of those who have borrowed less paid their debt or not gone to college at all. Nevertheless debate amongst the president’s supporters seem to focus only on the amount of forgiveness while failing to distinguish those that are most in need from those who can well afford to pay. And if such forgiveness implies that college may not equip students with the added skills to pay for their own education, should we reconsider the wisdom of encouraging all students to borrow for secondary education regardless of value or lifetime return?

Joe Selvaggi:

My guest today is Mark Kantrowitz, one of the nation’s leading experts in education financing, aid, scholarships, and grants for the past three decades. Mr. Kantrowitz’s writing has provided students with strategies for making informed choices about education and for borrowing wisely when doing so. Mark and I will discuss his research observation on the profile of those who carry student debt, and he will offer recommendations or more targeted debt forgiveness aimed at the most vulnerable while also avoiding the cost and moral hazard of forgiving the debt of those most able to repay. When I return, I’ll be joined by education financing expert, Mark Kantrowitz. Okay. We’re back. This is Hubwonk. I’m Joe Selvaggi and I’m now pleased to be joined by education financing expert. Mark Kantrowitz, welcome to Hubwonk.

Mark Kantrowitz:

Thank you for having me.

Joe Selvaggi:

Okay. Now, before we dive into our topic of a student debt forgiveness let’s establish for our audience for our listeners, your bona fides as the nation-leading expert on college student financial aid, scholarships, college savings plans, education tax benefits, and student loans. Tell our listeners, how long have you been doing this studying these options at making yourself an expert? You know, what, what brought you to this level of being the nation’s expert?

Mark Kantrowitz:

Well, I’ve been doing this work for three, so I have a lot of experience and I’m not content to state. What is existing policy? I, I like doing research to identify new insights and new rules of thumb that can influence public policy. I’ve served as publisher of several leading websites about planning and paying for college. I’ve written more than 150 student aid policy papers and 14 books including five bestsellers.

Joe Selvaggi:

That’s very impressive. So, you know, beyond what we’re gonna to talk about today, if our listeners are looking for an expert they’re trying to figure out how to pay, to pay for college in the future and prospectively. You would be the guy to talk to about how to borrow wisely and efficiently.

Mark Kantrowitz:

Now my mission is to help students and their families make smarter, more informed decisions about paying for college as well. Well as repaying student loans.

Joe Selvaggi:

So we’re gonna not just talk about the future in this case. We’re, we’re gonna talk about loans already incurred. So let’s, let’s jump into our topic. We’re gonna talk about the concept of a student debt forgiveness. Let’s set the stage for our listeners interested in in this topic, largely it’s brought on by president Biden, recent murmurs, that quote I’m considering dealing with some student debt reduction. This statement comes of course, course in the context of us we’re in the aftermath of COVID 19 during that time it seems reasonable that the student debt there was a moratorium amount paying back student debt, and that was extended a few times. And here we are back to don’t call it normal, but we’re a, an unemployment rate that’s remarkably low. So let’s say the, everybody who wants to work is almost at work. So let’s start with some numbers, how much total student debt now that we’re ready to pay it back. How much student debt is held in the United States

Mark Kantrowitz:

According to the federal Reserve’s G19 report, as of December 31st, 2021, there was a total of $1.75 trillion of student loan debt. More recent data is not available now of this total, about $1.6 trillion is federal student loans and the rest is private student loans. And the federal student loans is owed by a little bit more than 43 million borrowers. Now the payment pause and interest waiver that student loan moratorium applied to about $1.46 trillion of the total.

Joe Selvaggi:

Okay, so this is money. This trillion is a lot, I think it rhymes with billion, a million, but a trillion has 16 zeros, right? It’s 1600 billion. It’s a lot of money. So you’re an expert in the best ways to finance education. Is it already the case that before I go out and borrow money are the, are ways that the government or universities currently work to ease the burden? In other words is the government already doing its most to to prevent an aspiring student from incurring more debt than they should? Are there subsidies both from governments and universities already?

Mark Kantrowitz:

Right. So about six dozen colleges some of the most selective colleges have very generous, no loans, financial aid policies. They do not include loans in the financial aid package, replacing them with grants, but that’s only six dozen out of more than 6,000 colleges. All colleges that provide federal student loans are required to provide entrance and exit loan counseling to borrowers. I’ve argued that this isn’t frequent enough that you have to provide counseling every time the student borrows and that it needs to be personalized to the student circumstances. And some colleges also provide financial literacy training, the quality of the counseling and the financial literacy training varies from college to college. Some colleges have really good training. Some colleges not as good, and some provide the financial literacy training at all. Now every college, since 2011 has been required to provide a net price calculator on their website.

Mark Kantrowitz:

This is a calculator that students can use to generate a personalized estimate of their one year net price. The net price is the diff between total college costs and gift aid gift aid includes grants, scholarships, and other money that doesn’t need to be repaid. It’s like a discount on the college costs. And total college costs include not just re on tuition fees, but also room board, book supplies and equipment transportation, miscellaneous personal. So the net price is the amount of money that the family or the student will have to pay from their savings from contributions, from income, and from student loans, the student loan debt at graduation correlates very strongly with the net price. Now students should consider choosing a less expensive college. They don’t need to go to the most expensive college in their field besides the no loans colleges, which have a net very low net price, because they give more of the aid as grants, as opposed to loans. An in-state public college is for most students is going to be the least expensive option. And in-state public college costs about of quarter to a third, the cost of a private college.

Mark Kantrowitz:

You can also save on college costs in other ways, such as by buying used textbooks or selling them back to the bookstore at the end of the semester minimizing the number of trips home from school. And in general, what you need to do is live like a student while you’re in school. So you Don have to live like a student after you graduate.

Joe Selvaggi:

Oh, that that’s a great, that’s a great takeaway. I, I like that that, that slogan. And of course, when we talk about some selective schools, I, I did quick look up Harvard, if your, your family makes less than 75,000, it’s, it’s free. I think your MIT, that’s your Alma mater. I, I believe mm-hmm, <affirmative> also 75,000 or less, or even up to 140,000, it’s it’s next to, you know, close to zero to, to attend. But for most schools, that’s not the case. I’ll just point out I, I share your concern that colleges though, they are tests with students on making wise decisions. There’s a conflict of interest, right? Because if you’re an expensive school, make giving counseling, you’ve got a disincentive to make it clear to the student, how much they’re gonna owe in the, is that right?

Mark Kantrowitz:

That’s sometimes are as, as between a grant. And so the student is left with not really understanding how much they have to borrow to pay for the college. And sometimes they’ll referred to a loan as an award and not really have any signals that this is money that needs to be repaid.

Joe Selvaggi:

So we do want, you know, so we’re both advocates of students approaching college, it’s eyes wide open and saying, okay, I’m gonna get the education, but I’m gonna have to pay X to get it. So let’s just address some of the sort of narratives that those who are interested in for giving student loans. I think a lot of well, meaning people who, who may be sympathetic to the, these types of policies, imagine that students student debt really is a byproduct of, of, of a a student coming from a family with fewer resources and must borrow to to pay for school you’ve answered. I think already that there are choices that can go to less expensive schools, maybe state colleges, that sort of thing. But is there a correlation in your analysis between how much debt is held by students in general? And let’s say the family income, I there in other words, are, are, are poor kids, the ones who are taking on the debt

Mark Kantrowitz:

Well, and first of all, let’s establish that college means debt of students receiving a bachelor’s degree, more than 70% graduate with student loan debt. If we limit to students who applied for financial aid, filing the FAFSA, then seven eights of them graduate with student loan debt. One of the most effective ways of re eliminating the need for student loan debt is to pick wealthy parents, of course, that you can’t do that. But when I’ve looked at PE grant recipients versus non recipients, the Pell grant re, and these are generally very low income students, it’s a good proxy for low income status. They are much more likely to borrow for college than middle and high income students, and they graduate with more debt. So we expect are least capable of paying students who are least capable of paying for college to borrow the most. And that’s a sign that we’re not giving adequate grants to these students and the Pell grant historically has gone up by only about a hundred dollars a year, even as college costs go up by thousands of dollars a year. Now among students who graduated with a bachelor’s degree in 2016, 84% of PE grant recipients graduated with student loan debt that compares with 61% of other students, and they graduated with a few thousand dollars more, a student loan debt.

Joe Selvaggi:

Okay. So let’s, let’s break it down more granularly. Again, 1.6 trillion divided by the number of students is this sort of, are, are students, is there sort of a uniform profile of the debt, or are few students owe a thousand dollars and others owe hundreds of thousands of dollars? We, we really haven’t gotten down into the nitty gritty. We’re all only talking about undergraduate. My research, arguably nothing like yours seems to indicate that the, the massive debt is incurred by those who choose to go to graduate. School might be a pre professional school like law school or medical school breakdown, you know, is everybody about the same debt or we got huge disparities?

Mark Kantrowitz:

Well, we often hear news stories about a student who graduated with a bachelor’s degree and a hundred thousand dollars or more in student loan debt, mind you, you can’t do that just with federal student loans. You need private student loans to do that. The reality is that 90% of bachelor degree recipients graduate with less than $50,000 in student loan debt. And among those who graduate with six figure debt, most of them are graduate students with degrees in medicine or law. It really is an exception to the rule when a student graduates with six figure debt for an undergraduate degree. And that’s usually a sign that something is not being done right, that they’re at too expensive at college, or that nobody try to raise their awareness that they’re taking on too much debt. Because generally speaking, if your total student loan debt at graduations, less than your annual starting salary, you should be able to afford to repay your student loans in 10 years or less. So when your debt exceeds your annual income, that you’ll struggle to make those loan payments and you’ll need an alternate repayment plan like extended repayment or income driven repayment to yield a more affordable monthly loan payment. These repayment plans reduce your monthly payment by increasing the repayment term to 2025 or even 30 years, which means you’re gonna be paying a lot more interest over the life of the loan. And you’ll still be repaying your own student loans when your children go to college.

Joe Selvaggi:

So it’s like graduating with a mortgage that, that sounds a little bit daunting. Is there a correlation now we said there’s students who incur the six figure debt might be in professional schools, graduate schools medicine, law. Those are I think notoriously well paying industries, have you broken down where are the debt lies amongst low income, medium income and high income? I love your sort of back of the envelope rule of thumb, which is you ought not to incur more debt than your expected annual salary upon that graduation. Great, great a nugget there, but how given the profile of who owes money now, are they low income people, medium income, or even high, high income earners?

Mark Kantrowitz:

There’s a super position of two curves. One is people who took on a more lucrative, a degree, like a graduate degree and therefore have higher debt, but also higher income. And people who didn’t graduate at all, they have less debt because they weren’t in college for as long, but they don’t have the degree that can help them repay that debt. So they’re much more likely to struggle. That’s why you often hear statistics about the average debt of people who default on their student loans being under $10,000. It’s actually a little bit more than that. And that’s because a, the likelihood of default increases as the debt to earnings ratio increases the, the greater debt as a share of income. The more likely you are to default, but at the same time, if you drop outta college there’s a second curve there. And when you join the two curves, it yields results that are often misinterpreted as saying, oh, this is only a low income problem, or a low debt amount problem. It’s really a it’s. If you have more debt compared to your income, your ability to pay that debt is impaired. And if you drop out college, you’re much more likely to default on your student loans than someone who graduates.

Joe Selvaggi:

So I think we’re having a disconnect between the cost of college and the benefit of college. It seems odd that one would incur debt for something that doesn’t help them pay that debt, or doesn’t better help them pay for debt. Let’s. let’s start to talk about some of the remedies some of the numbers banded around for forgiveness. Again, I’m jumping ahead to forgiveness. You know, we don’t want blunt instruments such as you know, across the board forgiveness in my view as you mentioned, there’s a huge stratification of debt and potential ability to pay that debt. There’s wealthy people a lot and poor people, a little and ironically, or not ironically, but the, the, the lower income people with smaller debt are at most risk, at least are forgiving all debt across the board. Whatever that number is, it’s inevitably gonna wind up forgiving debt for people who have the most ability to pay back that debt. Isn’t that just obviously true?

Mark Kantrowitz:

Yeah. And that’s one of the things that some people object to in a broad student loan forgiveness program, which is why would you forgive the student loans of someone who is capable of repaying, their student loans? They argue that student loan forgiveness should be targeted at the borrowers who have financial need and not as wealthy or borrowers who don’t really, they want loan forgiveness, but they don’t need loan forgiveness.

Joe Selvaggi:

Yes, indeed. And I gonna, one, one of my little mantras is effective. The government doesn’t have its own money. So that money that’s going to pay off wealthy college graduates, perhaps doctors and lawyers is coming from people who didn’t go to college and perhaps pay their taxes. And that money is getting taken from someone who didn’t go to college and given to someone who did presumably if, if college is worth anything that seems difficult program to, to accept. Now we do already have programs, government programs from the, I guess, the department of education that does serve to forgive loans even before any talk of any future program. Right now, there are several national programs that allow some loan debt to be. Can you share with us, what are some of those programs?

Mark Kantrowitz:

Well, they tend to fall into two groups. One is for people who fulfill some sort of public policy objectives, such as getting people to teach in a national need area or other public service. So you have teacher loan, forgiveness you have public service loan forgiveness. The other group is discharges for people who are unable to repay the debt or can repudiate the debt in some manner. So if you die and your ability repay the debt is impaired. And so there’s a death discharge. If you’re totally I permanently disabled, there’s a disability discharge. If you are the victim of identity theft and didn’t actually borrow the loans, there’s an identity theft, discharge

Joe Selvaggi:

And yeah, and looking at these programs. And I, I wanna, I want you to tell me, I’ve read it wrong. I think recently the education department recently announced it for giving 6.2 billion in student debt for those working in the public sector. Now, I know public sectors jobs are not lucrative necessarily, but they are fairly paid. I assume that people show up for them. This, this program seems to be a bit self-serving that the government, it would forgive government loans for people who work for the government. Am I getting that wrong or is this shamelessly self-serving?

Mark Kantrowitz:

Well, members of Congress are ineligible for public service loan forgiveness. And the program is tied to a specific set of repayment plans called the income driven repayment plans where your monthly loan payment is based on a percentage of your discretionary income, as opposed to the amount you owe. If you’re a higher income individual, you’ll pay more under those plans, the, and someone who’s a low income individual and generally speaking in order to qualify for some loan forgiveness, your total student loan debt has to exceed your annual income. So this isn’t providing loan forgiveness to high paid DMV workers. It is going to people who are taking low paying jobs, despite their high amount of debt in order to give back to society. So an example might be public interest law like a public defender don’t get paid very well.

Mark Kantrowitz:

I mean, $40,000 is, is kind of typical yet. They may have hundreds of thousands of dollars of student loan debt for a law degree. If the warrant for the income driven repayment plans and the possibility of public service loan forgiveness, so that you’re not basically an indenture servant not just a public they wouldn’t go into these fields. The, the debt would be so big that it would provide a severe disincentive to pursuing a public service career. So public service loan forgiveness removes the debt as a disincentive. Now, their example is social workers for a masters of social, your debt might be 70, 80, $90,000. Those jobs pay $30,000, $35,000. It’s there’s a mismatch between how we compensate people for these public and national need areas and how much debt they have to take on to get a degree in that field.

Joe Selvaggi:

So effectively the government needs to effectively subsidize those professions. So as to incentivize people to that, who would otherwise not choose them to choose them. So

Mark Kantrowitz:

It’s also the it’s a lot less expensive for the government to provide public service loan forgiveness, then to pay these people more. I mean, if they were to pay them what they could get in the private sector they wouldn’t need public service loan, forgiveness. Now, public service loan forgiveness, it’s based on how much debt you have. And once that gets forgiven, there’s no more payout. Whereas if you were pay, hire salaries, then that would be higher income over the life, the work life of that individual. So in a way, public service loan forgiveness saves the government money.

Joe Selvaggi:

I’m curious, I just wanna divert for a second. If the government forgives my loan, let’s say owe a hundred thousand dollars and the, the largest forgives that loan. I know from my independent business world, that if my firm gives me a loan that, that they say you no longer need to pay back that’s considered a gift and it’s considered taxable. Would someone who’s been forgiven a hundred thousand dollars loan be then sent a whopping tax bill for the gift that’s been effectively given,

Mark Kantrowitz:

Right? So it used to be the case. Now IRS considers that if someone cancels your debt, it says though, they gave you the money to pay off the debt. And that money, that amount that’s forgiven is income to you. Now, previously public service loan forgiveness was tax free because of a special provision in the internal revenue code. But income, the 20 or 25 year forgiveness at the end of an income driven repayment plan was taxable. Many cases, these borrowers were insolvent and they could qualify for forgiveness of the tax debt, but the American resting plan act added a special provision that all student loan cancellation, whether forgiveness or discharge is tax free through December 31st, 2025. And president Biden has called in his budget for that to be made permanent. And it seems likely that it’ll either be extended or made permanent. And it applies not just to public service, loan, forgiveness, and income driven repayment, but also to the death and disability discharges. And they, they were charging the the, the tax liability against the estate of the de that just doesn’t seem right.

Joe Selvaggi:

So you’ve done a lot of research on ways to more to target forgiveness as opposed to just saying across the board, everybody the first $10,000 of your debt is, is forgiven regardless of income or your prospects for paying it back. What if some of the more targeted or criteria for debt forgiveness how do we target the people we really wanna target that is low income people who really just can’t get out from beyond their debt? How, how would you design a, a forgiveness plan that’s more effective than a across the board amount,

Mark Kantrowitz:

Right. So you could do means testing where you would forgive the student loans for someone who has an income below a particular threshold, maybe $50,000, $75,000 and that would reduce the cost. It would also reduce the number of followers who qualify, but the problem with means testing is that it would require some kind of an application process. And that means it can’t be done automatically. And the recent trend, I mean, what the Biden administration has done a lot of is making loan, forgiveness, the existing loan forgiveness programs, automatic, like doing a data match between the us department of educations records and the VA, or the social security administration in order to implement the stability discharges or special treatment for the debt of members of the us armed forces, where the interest rate is capped at 6% and, and, and similar provisions also with public service loan forgiveness members of the us armed forces are eligible, but I mean, just matching up that data to facilitate that is beneficial.

Mark Kantrowitz:

So I tend to like having a specific dollar amount of loan forgiveness, because it’s much easier to implement, but rather than provide the forgiveness to everybody $10,000 of loan forgiveness us to every borrower would cost 375 billion. And for you completely erase the student loans of a third of borrowers provide that loan forgiveness only to people who owe $10,000 or less, that reduces the cost of 75 billion, but still completely erases the debt of the third of borrow. And it tends to be better targeted at borrowers who are lower income. And you still, it’s not perfect because you still have wealthier borrowers who just happen to have paid down their debt to under $10,000, but it is much more effective than saying everybody get it’s a freebie.

Joe Selvaggi:

I see. I wanna the change, the focus of our lens a little bit. And I, I think we touched on it when we were talking about, you know, sort of prospectively when I’m thinking about taking on debt and going into college and choosing which college and frankly, which major, what do I do for a living and comparing what my debt will be com relative to my, my aren’t we, in a sense if we are effectively forgiving debt for people who are lower income effectively, subsidizing those fields that generate less income, are we creating incentives or, or distorting incentives so that students choose perhaps instead of high paying, let’s say, and majors, they become you know, theater majors or poetry majors don’t. We run the risk of saying, okay, choose your path cost be. And the less you make, the more we’re likely to subsidize afterward. This seems to me that perhaps be steering people in directions that you know, aren’t good for their long term wellbeing,

Mark Kantrowitz:

Right? Well, this is a problem that’s often referred to as moral hazard, where if you know that your student loans are going to be forgiven, then you increase the amount you borrow. However, if they limit the amount of forgiveness to say $10,000, that means that the borrowers will still have to repay the rest of their student loan debt that tends to minimize the risk of moral hazard. And it, any kind of loan forgiveness program will have those potential problems. I tend to favor solutions, which reduce the need for debt by providing more grants, targeted grants up front such as doubling or tripling the Pell grant that not only increases who goes to college and who graduates from college, but it also reduces the amount of debt at graduation, whereas a won’t forgiveness program, I doesn’t increase college access or success,

Joe Selvaggi:

But, but in, okay, let, let’s pull the lines further back PE grants or money coming from the government. And, you know, the deep dark secret is the government doesn’t have its own money. So it’s coming from you’re, you’re essentially giving money, whether in the front end or the, or forgiving in the backend, you’re taking money for people who didn’t go to college and giving it to people do which, in a sense, again, we accept that where you get taxes, give you less of something and substance give you more something, aren’t we, in a sense calling education in general, just a common good worthy of, of taxing people who don’t do it, of these people who do what, what public benefit is it to continuously and perhaps, you know, in the broadest strokes possible, send everybody to college. Aren’t we sort of missing the point here. If, if ultimately the college doesn’t generate the revenue necessary to pay back college, isn’t the value proposition you know, something we consider,

Mark Kantrowitz:

Well, college is not just a private good benefiting the student. It’s also a public good, a college graduate with a bachelor’s degree, pays more than twice the federal income tax of someone with just a high school diploma. So people tend to personalize this issue, asking why they’re of taxes should be used to pay off someone else’s student loan debt. But the reality is that it’s the college graduates who mostly are going to be paying back the cost of this through their income taxes. If their income taxes are actually increased to, to cover the cost and not pass off to some future generation decades from now the one could take that kind of argument that why should my taxes be used for something that I disagree with and to other areas, like, why should you pay for the military if you’re a pacifist, or why should you pay for school taxes if you don’t have children should you pay for the police if you don’t commit crimes should you pay higher health insurance premiums and higher life insurance premiums, if you’re healthy why should you have to pay taxes at all?

Mark Kantrowitz:

If you don’t like your state’s politicians, if you didn’t vote for the guy or maybe the politicians in another state where you clearly didn’t should you have to pay for snow removal if you don’t own a car? Or the example I gave earlier is nobody the public tends to dislike the DMV. Well, why should you have to pay the salaries of people who work for the DMV, if you don’t like the DMV why should you have to pay taxes on things that you buy for your own use? And all of those are similar questions.

Joe Selvaggi:

I, I would be happy to answer any one of those questions. They are all very, very good questions and all easily answered and, and dispensed with. I, I don’t wanna cloud our, our topic with, with sort of hypotheticals, but I will say though, if you characterize if you say merely that those go to college make more than those who don’t and their air go, they pay more in taxes and keep us all happy you. I think that’s a bit of a disingenuous statement, which is to say, that’s not a random sample. We don’t take the same, same 10 guys and send 10 to college and 10, not to college and compare the outcome. You know, the people go to college are self-selected and, and, and arguably have profound advantage of those who don’t. But I’d say if I take someone, you know, at the margin who had a choice, whether they go to trade school or invest in a F-150 and become a, a, a, a plumber instead of going and becoming a history major it, it could be argued that they would make far more in the trades than they would as a professional historian or, or, or something else.

Joe Selvaggi:

And, you know, how does that benefit me to send him to school and how arguably, and, you know, we can have ethical conversation all day long, but if indeed we’ve sent a someone who would otherwise be a successful plumber to being an unsuccessful an unsatisfied historian we’ve heard him too, not just society. So what would you say to, to the people who have those concerns?

Mark Kantrowitz:

Well, I, an, an electrician or an H V a C tech with a certificate or an associates degree can earn as much as a bachelor’s degrees in some fields. And, and the argument that, why should you subsidize one and not the other, like, why should you pay for an electrician who is based in two states over? And so you’re not gonna benefit from that electrician personally. I, I think that we all benefit from having a more educated populist, and, and I’d also like to point out that you really don’t have a student loan problem so much as a college completion problem. The default rate for people who get a bachelor’s degree, who graduate, even if it’s in a field like underwater basket weaving they are much, much less likely to default than someone who drops out. Overall among all undergraduate students, students who drop out are four times more likely to default than students who graduate, but among bachelor degree programs, they’re 95 times more likely to default if they do drop out than if they graduate. So the, the, the problem is that we’re not getting students to finish line. And that includes people who are pursuing enrolled at lower cost institutions like one year and two year programs. They’re actually more likely to default than people who go to a four year program.

Joe Selvaggi:

So I’m, you know I appreciate that. If anything, I, I think perhaps it makes my point more strong in that if we are in a sense, subsidizing college and encourage people to go to college, who might not otherwise choose college by virtue of the return on their investment, but they embark on college, encourage are debt, and then, and then leave college and ultimately default are we doing them a favor by subsidizing them with, you know, let’s say triple your grant plan, they still default. They still leave. They still have debt. How, how have we how do we solve the dropout problem by the giving people more reasons to go to college?

Mark Kantrowitz:

Well, doubling the PE grants would pay for itself in terms of increased federal income tax revenue, based on the number who would ultimately graduate in about a decade. Most people work 40, 45 years. So that means we’re gonna get at least 30 years of pure profit to the federal government from increased federal income tax revenue. It’s the equivalent of a 14% annualized return on investment. Now, if I were to come to you and say, I’ve got this sure fired way to generate 14% return on investment for decades, you’d be asking me, is your name Bernie Madoff? Because, well,

Joe Selvaggi:

There’s a, there’s a big, big, big, big flaw in that, that line of reason, which is to say the people who go to college and the people who don’t go to college are the same people. They’re very, very are different people. So if I push a button and send everybody to college and assume that the half that have not gone to college will now join the ranks of those who do and earn the same amount. You’ve got a point, but that seems like a, a profound, a leap of, of faith. I think there’s a difference fundamentally between people who go to college and frankly, people I’m not saying

Mark Kantrowitz:

Send everyone to college. I’m saying people are college capable of benefiting from college. Provide them with the resources. They need to afford a college education. Right now you have college capable, low income students who don’t go to college because of the chilling effect, a student won’t debt. If you had a borrow more than your parents earning a year to pay for your college education, you’d think twice about going to college. Even if you’ve got the academic chops to be able to benefit ’em from a college education and wealthy students who are least college capable enrolling college at six times, the rate of highly qualified, low income students. So we are not investing in our best resource, which is our people at an adequate level, we need to do more to ensure that college capable, low income students are able to enroll in college and graduate from college. If that’s what they want to do. I’m not saying that someone who flunked out of high school, I mean, should go to college. I mean, maybe they need to go back to high school and, and get their education. Or maybe they that’s. Education is not the right pursuit for them, but there are plenty of people who could benefit from college, but don’t because it costs too much.

Joe Selvaggi:

But if, again, I don’t wanna keep beating this to death, but if we say we’re, when we invest in college, we’re investing with the expectation that it will improve our future earnings to the degree that we’ll be able to comfortably pay our, our college back. Right. So if it provided no value, it would be no, there would be no value in going to college. You might challenge that statement, but let, let’s just stipulate that it ought to deliver some return to the person who receives the education. And I think you would agree with that. But what you’re saying now is that college is inherently good. We should send everyone or who wants to go, or who is, as you say, college capable, but somehow on the other end, that college degree does not empower them to pay back the loan that they incurred. In other words, it isn’t worth what they paid for. Isn’t that really a, a fundamental economic question. It’s not is something valuable, but is it worth enough value to you know, trade money for it?

Mark Kantrowitz:

Oh, and first of all, if they graduate, generally speaking, they’re able to repay their student loans. And except for the rare case where someone goes completely overboard with borrowing, you need to peg the aggregate loan limits to the expected annual income of the degree level and the academic major. The problem is people who drop out, as I said before, have the debt, but not the degree to can help them repay the debt. So we, this isn’t a issue of when people are graduating from college and don’t have the income because they picked a low paying career. And oftentimes those low paying careers give back to society. In other ways, the point is that the federal government is profiting off of college educated people. They pay more federal income tax, a greater share of federal income tax than people who don’t have a college degree.

Mark Kantrowitz:

So is the federal government paying its fair share of college costs are state governments paying their fair share of college costs, given that their profiting from increased income tax revenue. And I think the answer is no that they, and maybe in the 1970s, they were paying their fair share. But over the decades, the financial aid provided by government has shifted from grants to loans grant, every dollar grant costs of government, a dollar, every dollar of a loan yields, a small profit to the federal government. It’s a lot easier to increase aid in the form of loans than it is in the form of grants. And this has shifted the burden of paying for college increasingly from the government to the families. This is despite family income being essentially flat for the last two decades. So families are increasingly struggling to pay for college.

Mark Kantrowitz:

Now, the only form of financial aid with any degree of elasticity is loans cause and their, their income is hasn’t changed. So they either have to send to a lower cost college. And that’s not just from private colleges to public colleges. It’s from four year colleges to two year colleges, two year to one year and one year to no postsecondary education or they have to borrow more. And that’s why we see very steady increases in the average debt graduation and the total student loan debt outstanding. And that’s because the government is not caring, its fair share of the cost.

Joe Selvaggi:

Hmm. I’m not sure I follow that logic, but it seems to me that you, you, you wanna serve that the government needs college education more than the individual. No,

Mark Kantrowitz:

It’s a partnership. It’s a partnership. Part of it gets paid back by the student. Part of it gets paid back by the government and the government still comes out ahead financially, when you look at the impact on federal income tax revenue from getting these students to the finish line.

Joe Selvaggi:

But so does the student you know,

Joe Selvaggi:

It’s but a pub, you know, again, we don’t wanna do a economic degree here, but you know, public good is not, it’s good for the public it’s non-rival non-excludable that sounds like a private good, not a public good. If I go to college and get a PhD benefits me. Sure. I’ll pay more in taxes in my life, but I should be able, willing to pay for what I, I, what I consumed or what I, what I gave to myself. I mean, why not? Why privilege education? Why not give subsidies for people to become again you know electricians, why, why privileged, you know, academics?

Mark Kantrowitz:

I’m not saying that they shouldn’t pay anything for their degree. I’m just saying that the federal government doesn’t pay its share based on its the its share of the benefit and the, the federal government needs to do the, the people who need forgiveness are the people who through often through no fault of their own have are unable to repay the student loan debt. Maybe they got that PhD trained to be a rocket scientist. And the day after graduation, they’re in a car accident and they’re are paraplegic and they can no longer do the job for which they’re trained. That’s why we have a disability discharge just saying, oh, I mean, people should have to pay the entire cost of their college education. Even though the government is also financially benefiting that’s, doesn’t really make sense. The government benefits, the borrower benefits, the student benefits both should be contributing to the cost of that education.

Mark Kantrowitz:

And from the governance point of view, if it were to invest a little more in making college more affordable, it would increase the number of people with college degrees and therefore increase its net federal income tax revenue after subtracting the cost of the getting the students to graduate. And that could benefit the rest of society in two ways, either government has more money. And if you think the government spends its money wisely, it would have more money to spend on programs that benefit society, or it could reduce the taxes that everybody pays because it’s getting more revenue either way. There’s a benefit to the rest of society, not just the individual who got that college degree.

Joe Selvaggi:

All right. We’re I think we’re gonna have to disagree here because I think the, that logic take to it, logical conclusion is, you know, I pay property packs for my house. So the go, the government should subsidize my, my home purchase. I, you know, I mean, I arguably it does for, for mortgages and I, I might take issue with that, but we’re gonna have to disagree, but I appreciate you’ve given this a lot of thought. And you know, I think you’ve given our there’s something to think about and I enjoy a good a good lively conversation like this. So Mark, I want you to be able to plug your services those people who are persuaded by your arguments over our conversation, would like to find you and perhaps ask for your help and best ways to pay for school. How can our listeners find you?

Mark Kantrowitz:

I don’t do paid consultation with families and sometimes people find me and send me a question. And sometimes I’ll answer that, I get far more questions than I have time available to answer. I have a website where I have my student aid policy papers, that’s studentaidpolicy.com. I write for the college investor website. I also write for forbes.com and I’ll soon be starting up a Q and A column that will be published by the Wall Street Journal.

Joe Selvaggi:

Yes, I went on your website. You have I don’t know, hundreds of articles that are all very carefully reasoned and, and supported by data. So I, I do recommend your your website to our listeners. So Mark, thank you very much for sharing your analysis with us. I enjoyed our conversation today.

Mark Kantrowitz:

You’re welcome.

Joe Selvaggi:

This has been another episode of Hubwonk, a podcast of Pioneer Institute. If you enjoy today’s episode, there are several ways to support the show and pioneer Institute. It would be easier for you and better for us. If you subscribe to Hubwonk on your iTunes podcast, catcher, it would make it easier for others to find Hubwonk. If you offer a five star rating or a favored review, we’re always grateful. If you share Hubwonk with friends, if you have idea is or comments or suggestions for me for future episode topics, you’re welcome to email me at hubwonk@pioneerinstitute.org. Please join me next week for a new episode of Hubwonk.

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