The Student Loan Debt Scam

Charlie Kirk used to say that "college was a scam".

He wrote a book about why he believed that in 2022.

It was a natural thing for Kirk to say since he decided to forego college in order to found Turning Point USA which he built into a massive success.

I would not use as strong a word as "scam" to describe college.

However, the return on investment in higher education is declining.

The cost/benefit relationship is massively out of whack.

Despite this fact, more and more money is being borrowed to pay for higher education. It is simply not supported by the underlying fundamentals.

Millions are in college and funding those high costs through student loans. 

At least a third of those in college should not be.

For example, consider this graphic that shows the most underemployed college degrees.

This is defined as graduates with a college degrees that are employed in a position that does not require that credential.

Source: https://www.voronoiapp.com/economy/Most-Underemployed-College-Degrees--6047

Leading the list are Criminal Justice majors of which 67% are working in jobs that do not require a college

This does not necessarily mean that these graduates are flipping burgers somewhere.

However, it could mean that they are working as a security guard or as a police officer or other law enforcement position that does not require a degree.

Performing Arts is second on the list at 63%.  The college experience and degree are nice but Tom Cruise never attended college nor did Taylor Swift. 

Would they have been more successful if they had attended college?

Overall, 38% of college graduates are working in jobs that don't typically require a degree.

How have we allowed the cost of higher education to increase at multiples of the return on that investment in a college degree?

I came across an interesting article about a decade ago in The American Spectator by Bill McMorris that traces a big part of the student loan problem to a Supreme Court case in 1971 that is largely unknown to most people today. 

Source: https://spectator.org/how-the-supreme-court-created-the-student-loan-bubble/

In that case, Griggs v. Duke Power Co., the Supreme Court ruled that jobs-based aptitude tests were potentially discriminatory as it could cause "disparate impact" when used by employers to assess and predict the performance of workers for promotion and advancement.

After World War II, aptitude tests gained favor with businesses after their wide use in processing hundreds of thousands of recruits into the right roles in the War effort. For example, my father was only a high school graduate at the beginning of World War II but he was assessed with high intelligence and trained as a cryptographer. He told me that he was one of the cryptographers who passed the top secret message to drop the atomic bomb.

Industry used the tests after the War to determine who would rise through the ranks based on whether someone had the aptitude to succeed rather than simply focusing on a college degree.  After all, only about one in eight returning people from the War went on to college in those days.

McMorris explains the impact of that decision on our society and, ultimately, on student loan debt.

The Griggs decision has made that organic rise through the ranks impossible, as disparate impact left businesses liable for those who failed to pass hiring tests.

Any minority denied a promotion due to a poor test score could generally sue unless it was shown that all minorities had their "share"of the better jobs. It was not enough to show that there was no racist intent. All one had to show was disparate results.

The solution for businesses post-Griggs was obvious: outsource screening to colleges, which are allowed to weed out poor candidates based on test scores. The bachelor’s degree, previously reserved for academics, doctors, and lawyers, became the de facto credential required for any white-collar job. 

After the Griggs decision, the colleges effectively had a nice gig as the golden ticket to the "good life". A college degree effectively became the route you had to travel to get ahead.

Colleges, aware of their newfound utility and the easy money pouring in from student loans and Pell grants, jacked up prices. 

Higher Education costs grew 701% over the last 40 years---more than 3 times the rate of overall inflation. 

Quite simply, college costs could not go up without a supply of money to pay for it. 

Student loans were supposed to make college more accessible and affordable for those who did not have the resources to consider higher education.

Instead, it made college less affordable for everyone and made student loans a necessity even for those who previously might have been able to avoid going into debt for college.

Just as is the case with health care costs, college costs have become heavily dependent on the flow of federal money into the system.

The average undergraduate student today takes out nearly $40,000 in debt to buy a ticket to the good life. 

Many would be better off taking that money and going to trade school or buying a Tesla and just faking the good life.

How bad is it?

42 million Americans have student loan debt.

Black Americans have a disproportionate share of of that debt. This is the very group that the Supreme Court in Griggs was worried about regarding disparate impact.

36% of Blacks have student loan debt compared to 20% of Whites.

Source: https://www.fool.com/research/student-loan-debt-statistics/

The Griggs decision was based on the theory of eliminating disparate impacts. 

In reality, the "government solution" just created a bigger problem.

The balance on all student loans, including those from private sources, is now over $1.8 trillion. 

For perspective, that is about the same as the total annual GDP of countries such as Australia, Mexico and South Korea.

Source: https://www.fool.com/research/student-loan-debt-statistics/

$1.7 trillion of total student loan debt is owed to the federal government which federalized the program in 2010 in order to fund Obamacare.

Yes, the "profits" from the interest on student loans was established as a source of funds in order to pay for the subsidies necessary for Obamacare in the original "Affordable Care Act" in 2010.

The same Democrats who took over student loans from the private sector then turned around a few years later and wanted to cancel all student loans.

The deception and duplicity of it all was diabolical.

Student loan debt is also not dischargeable in bankruptcy. That is one reason that a staggering 3.6 million Americans age 62 and over have outstanding student loan debts.

This debt has either been accumulated personally and not paid off for years or is the result of taking out Parent Plus loans for their children or grandchildren.

452,000 people who are receiving Social Security benefits are now at risk of having these benefits garnished to pay this debt since the pause on debt payments during Covid has expired.

For now, the Trump administration has stated that it will not use Social Security benefits to offset unpaid student loan debt that is in default as the law allows.

Source: https://apnews.com/article/social-security-benefits-student-loans-collection-garnishment-4404c2959609dbb4f0d8c7d5cc319164

However, that risk overhangs those Seniors in default.

192,300 Seniors were having their Social Security reduced by the federal government in 2019 to pay defaulted student loan amounts. In 2001, only 6,200 were having their benefit reduced through forced collection to pay student loans in default.

The bottom line is this.

College is not a scam but the student loan program feels like one.

It is yet another example that proves the truth of one of Ronald Reagan's most famous quotes.