Student loans and the federal government

MARY REICHARD, HOST: Coming up next on The World and Everything in It: the future of education economics.

The Supreme Court recently struck down President Biden’s plan to cancel the debt of students who took out federal loans for college.

NICK EICHER, HOST: The president had said earlier that only Congress had the power to cancel student debt, but made a political calculation and did it anyway.

Even though the Supreme Court struck it down, the debate over student loan debt continues. Here to talk about it is economist and World Opinions commentator Jerry Bowyer.

REICHARD: Jerry, good morning!

JERRY BOWYER: Good morning to you Mary.

REICHARD: Tell us how the education economy works as far as federal funds go?

BOWYER: How it works is very dysfunctionally, in the sense that it is the perfect example of the fatal conceit of when the government decides that it's going to make something cheaper and subsidizes it. It doesn't make it cheaper, it makes it more expensive. And it increased the cost all the way around because when the government subsidizes education—whether it's by direct grants, or whether it's by subsidized loans, or the ultimate subsidized loan is a loan that gets forgiven. It's no loan at all, really, at least in the long run. What that does is that just ends up flowing into the coffers of the colleges and universities. So it's a system that did not work. And under Obama, it was more nationalized. A lot of these loans were brought on the books of the federal government, rather than being out there in government sponsored entities, that is things that were associated with government, but were actually private, you know, like Fannie Mae, Freddie Mac, you've heard of these things. So these are called government sponsored entities. And one of them is Sallie Mae, and that was school loans. But a large proportion of loans were actually taken out of the private sector, and put in government. So the government bought existing loans. And in addition, it became a lender itself, not just somebody who guaranteed somebody else's loans, but became the lender, which meant that these loans are assets owned by the taxpayer. And to forgive them is actually not to forgive the loans, it is to transfer debt from the borrower—in this case, people who went to universities—and since people who go to graduate school tend to have bigger debt than people who didn't go to graduate school, so it's people who are graduate school graduates, people in the professions that tend to be higher income, it's a transfer of debt from them to taxpayers in general. And of course, since we're not running on a going basis, that means future taxpayers—our kids and grandkids. So Biden didn't forgive anybody's debt. He took the debt off the back of largely doctors, lawyers, people with graduate degrees and put it on our grandkids.

REICHARD: Jerry, both the President and then-Speaker of the House Nancy Pelosi said in no uncertain terms that only Congress has the power to cancel debts like this. Why then did the president change course and do something he knew wasn’t right under the law?

BOWYER: Yeah, and I think Nancy Pelosi and Joe Biden were trying to manage the expectations of the ideological extremists in the party. And I think what's happened between now and then is the ideological extremists in the party are now the mainstream of the Democratic Party. They're not a group outside yelling in. To be in power as a Democrat, is largely to have them as a core part of your coalition. So those people have a long time been saying, we need to cancel the debt, we need to cancel the debt. And the gatekeepers in the Democratic Party have said, no, no, no, yes, we want to. It's a great idea, we love the idea, it's great policy. We just can't do it without a change in law. So it was a way of kind of controlling their rabble rousers. But the rabble rousers are now the base. And so I don't think that Biden changed his mind about the legality of it, or Nancy Pelosi did. The legality of it hasn't changed. This is an article one power in the constitution. So nothing changed legally. What changed is something that changed politically. So I think there's a reasonably high probability that when Joe Biden signed this executive order, he knew it would be struck down by the courts. Which means—it's kind of cynical here because students had their debt "forgiven," really meaning transferred on to other people, and then they were excited about that, and now it's back on them. And now there's social tension. Well, that social tension was anticipatable by the people behind this—mostly the president who signed the executive order. And I guess, you know, that shows that they don't really mind social tension as long as they appease the left, and then somebody gets struck down by the court, you know, that's kind of a win-win for them. They can say we tried, it didn't work. And those nine people or six of those nine people, you know, they're wrong again, maybe we need more Supreme Court justices. So that's another element of the Democratic Party now. Attacks on the judicial branch are now mainstream.

REICHARD: Final question, Jerry. Some say that the compassionate thing to do is relieve the burden of debt from these students. But you, along with many others, say that’s not true compassion. You recently wrote a column for WORLD Opinions in which you sought to clarify passages of Scripture that some use to support debt transference or forgiveness. Can you explain?

BOWYER: Yes, there is debt forgiveness in the Bible, but the person who made the loan and as the owner forgives, that's compassion. If I owe you money, you forgive what I owe you, you own the piece of paper, you own the IOU and you tear it up. You say, Jerry, you're my brother in Christ, I forgive your debt, then that's certainly biblically permissible and encouraged in many cases, especially when it's somebody in need. And in Torah, which is not directly binding, but still has moral principles for us, there was a seven year process of that. That's compassionate. But if you forgive somebody else, if you give my debt to somebody else, there's no compassion, there's just coercion. So that's not a compassionate move at all. And again, these debts aren't actually being forgiven, they're being transferred. And I just don't know why law school graduates are more deserving of compassion than our grandchildren, who are going to end up having to pay this or defaulting on it and destroying our financial systems. So this is really a very, very false form of compassion. This is favoritism of the worst sort. If it were a general debt decree, that would be different. But this is a group of college graduates and especially college graduates from graduate school, who arc towards Democratic politics, who tend to be supporters of the president. So this is, this is pork barrel politics. This is not the year of Jubilee that's talked about in the Bible. This is something a lot more like Babylonian kings did when they were feeling a little unpopular, which is make somebody else forgive debts, kill off some noblemen and say, look, I'm your savior, not compassionate at all.

REICHARD: So the colleges and universities could be compassionate?

BOWYER: I think Congress should look at something that holds the colleges and universities responsible. They have gigantic financial endowments in many cases. They were the beneficiaries of these loans, right? The loans were taken out to pay them. They have had enormous expansion in their revenues. They've had enormous expansion in their public budgets. They're the beneficiary. If there's debt forgiveness to be done, it should be done by them. And another idea is, maybe it's not debt forgiveness, maybe we start to look at how fraudulent they were. Because if you look at the marketing departments of colleges and universities—I work in the finance industry, if I talked about investments, the way they talked about an investment in a college education, I'd be wearing striped pajamas. So they go out and say, well, people with college degrees make a million dollars. Well, hold on a second, that is so promissory, and so distortive. So one could argue that some of these marketing programs—we call an admissions office, but really it's a marketing program—they over promised the benefit of a college degree, and therefore they fraudulently engaged the students and therefore they should pay some kind of restitution for the benefit that they incur. I think you could make that argument. I think there would have to be a law to that effect, but I think that's something we really should look at. And by the way, if the college is question that then I'd say well, wait a minute, is it beneficial or not? If a college education is really as valuable, as you said it was, then why do we need student debt forgiveness? I mean, these young people should be doing beautifully. They did what you said, they spent their $80,000-$100,000 a year, they're making their million dollar added income from being college graduates. If it's so valuable to be a college graduate, then why the tin cup, if it's really that valuable, and if it's not that valuable, then these colleges and universities have some explaining to do because they sure implied that it was.

REICHARD: Jerry Bowyer is an economist and the President of Bowyer Research. Thanks so much, Jerry!

BOWYER: And to you. Take care.

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