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April 18, 2014

Warren's populist pitch on student loans is off key

Editor's note: CNHI newspapers that are not weekly subscribers to Taylor Armerding's column may publish this one if they notify him at t.armerding@verizon.net. - See more at: http://www.cnhinews.com/cnhins_opinion/x749156587/Obamas-equal-pay-exaggeration-leads-us-all-into-danger#sthash.VgwzcwAI.dpuf

Editor's note: CNHI newspapers that are not weekly subscribers to Taylor Armerding's column may publish this one if they notify him at t.armerding@verizon.net.

College graduates with a debt hangover could definitely use an advocate. The average graduate will leave college next month owing $30,000, and enter a still-mediocre job market.

But that advocate is not superstar freshman Sen. Elizabeth Warren from Massachusetts, no matter how hard she tries to portray herself as such.

Warren's goal is to distract graduates from the real source of their problem – runaway inflation of college costs, thanks in large measure to overpaid administrators and professors like her. The cost of higher education has increased by three to four times the overall rate of inflation, depending on who is doing the estimating, over the past three decades.

Warren, self-appointed champion of the middle class, knows all the populist talking points and slogans that appeal to students who are dazzled by her star power (enabled in significant measure by a fawning media) and don’t bother to look below the veneer.

Hence their vigorous applause at her recent speech at Suffolk University’s Law School, where she attacked “government profits” on student loans.

Warren painted student borrowers as victims of everybody but people like her.

“These students didn’t go to the mall and run up a bunch of charges on credit cards. They worked hard to learn new skills that will benefit this country. … They deserve our support, not an extra tax for trying to get an education,” said Warren. This from a woman who has never met a tax she didn’t like, as long as it is levied against those who have “worked hard” but ended up committing the sin of becoming successful outside of academia.

How would Warren “support” those students? As in the past, she issued a clarion call for lower interest rates on their loans; last year she tried to get them cut from 3.8 percent to 0.75 percent, something not even her Democratic colleagues would endorse. More recently, with another absurd slogan – “Do we invest in students, or millionaires?” – she called for another tax on millionaires, with the revenue to be used to cut interest rates on student loans.

One wonders if she will define a millionaire like President Obama does – anybody who makes one-quarter of $1 million?

She also wants student borrowers to be able to eliminate their debt through bankruptcy - take that, you greedy, profit-hungry federal government! - and wants colleges penalized if large numbers of their graduates default on their loans. That’s right, teach young adults right away that if they fail to pay back a loan, they should blame it on somebody else.

This is pure demagoguery. Even the left-leaning Brookings Institution called her interest-rate proposal last year a “cheap political gimmick.”

And, of course, there is no context to her rhetoric. Student loans, at 3.8 percent, are right around where mortgage rates are. But mortgages are secured by collateral – the house. If the borrower defaults, the lender can seize the property. Students have little or no credit history and offer no collateral, other than the vague expectation that they will get a job and pay it back with their expected income.

Warren’s claim that the federal government earns “enormous profits” from gouging students is equally flawed, conveniently omitting half of what the federal Office of Management and Budget predicts. The agency reported last June that the government might realize a maximum of $182 billion from student loans over 10 years. That’s $18.2 billion a year - not even a rounding error in a budget of trillions. It also said student loans could cost the government $95 billion over the same period, depending on the default rate.

That default rate is now more than 20 percent. Federal law also forgives the remainder of student loans to those who work in the public sector and make 120 payments (generally 10 years.) Warren, as said earlier, also wants to allow student debt to be liquidated through bankruptcy.

So, which scenario seems more likely, big profit or big losses? Even Sen. Warren ought to be able to do that kind of math.

The saddest thing here is that student debt ought to be addressed seriously. It is an enormous and growing problem, at about $1.2 trillion. When graduates leave school with $30,000 or more in education debt, they spend the first decade or more of their working lives trying to pay that off, which makes it tough to save for a home or start a family.

The cause of all this is not the interest rate on the loan, which is relatively trivial. It is the amount of the loan. And to address that would require Warren and her colleagues in the higher-education racket to look in the mirror.

It would require her to account for accepting $350,000 to teach a single course at Harvard Law. Multiply that “big-bucks-for-very-little-work” syndrome across the country and it goes a long way toward solving the alleged mystery of why college costs so much. What was that about the rich getting richer?

It would require explaining why tenured faculty teach less but get paid more; some get sabbaticals every third year, instead of every seven. When was your last sabbatical?

And it would require politicians to explain why they keep loaning more money to students, since every time they do, the colleges just raise their prices again.

But that wouldn’t prompt applause, or votes. That would only focus on how to solve the problem. It might tarnish Warren’s star power. What good is that?

Taylor Armerding is an independent columnist. Contact him at t.armerding@verizon.net

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