Chip Shots by Chip Griffin

Is College an Entitlement? Are Student Loans Bad?

Flipping around my television for a mental break this afternoon, I stumbled across former CNN anchor Frank Sesno moderating a panel at George Washington University (my apologies to American University President Neil Kerwin who would likely prefer that I refer to it as "that other Washington school"). My idea of mental floss (to borrow a phrase from Brad Feld) may be a bit odd, but I stuck with the discussion because it centered on the cost of attending college.

The panel opened with a bit of news that apparently came out of Stanford today as that university announced that for students from families making less than $100,000, there would be no student loans or tuition. Those from families making less than $60,000 would pay no room and board either.

GWU President Steve Knapp was concerned about "debt burden" of graduates and felt that it impacted career choices, deterring some from taking lower paying public service jobs. He said for students that leave his school with debt it averages $29,000 and he has a goal of reducing that figure to $20,000.

Let me say at the outset that I was quite fortunate and went to American University on a full academic scholarship, so I left school with no student loans to pay. That’s one of the reasons why I have been an active supporter of the university in recent years as I have achieved success in business. I’m proud of the fact that I have now given more to the school than I would have paid in tuition.

I also want to acknowledge that the cost of higher education does seem to be growing at a significant rate and it clearly presents a challenge to many students. That’s why much of my giving focuses on funding scholarship programs at AU.

However, one of the panelists (Jared Bernstein from the Economic Policy Institute) noted the "college premium" that economists recognize has increased quite quickly in recent years and, in fact, has doubled in the last generation. In other words, the amount of money earned by college graduates is growing very quickly as well.

This all made me wonder whether some of the concern is a bit overblown and whether, in fact, some college debt might actually be a good thing. One of the cornerstones of the American economy is the notion that it takes risk to gain rewards. The notion of "get rich quick" schemes, happily, doesn’t prevail, but rather the idea that one must invest to reap rewards dominates.

Now, this isn’t merely an effort to ensure that Christopher Penn remains gainfully employed at the Student Loan Network, but rather an honest attempt to examine what the right public policy decision might be. But perhaps we shouldn’t view college as an entitlement for which schools and government must work to reduce the cost as close to zero as possible (understanding it won’t likely be very close). Perhaps, instead, we should address the concern that Steve Knapp outlined at the start of the conversation of limiting job choices of college graduates.

The idea, then, would be not to focus as much effort on the cost of college education itself, but rather seeking some way to balance the cost after graduation. If someone takes a lucrative job and can easily pay off student loan debt, there’s no real reason for government to subsidize the cost. But if they take a job in an underserved area of public service, for instance, then there’s a better reason to address that debt burden.

Of course, it would be important to avoid a perverse incentive to take certain low-paying jobs simply to gain a subsidy. Instead, it seems to me you would want to use it to lure students to become teachers at inner city schools or take other similar posts where college graduates may be less inclined to go. 

As a conservative, I have a distaste for government manipulation of individual choices, so I’m treading on thin ice here (but that’s what happens when you think out loud as I am in this post). So here’s where you come in. Am I nuts? Is there a nugget of value to my ramblings? What say you?

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  1. As a George Washington alum, what struck me most about this piece was your mention that you give generously to your alma mater. GW is the most expensive college in America, and sure was my choice to go there, but the amount of debt I face even seven years after graduating is extreme. I will likely be paying for my GW education well into my 50s, barring a lottery win.
    my point, is that GW has one of the lowest endowments, and I imagine one of the reasons for that is that there are a lot of alumnus like me out there, who still owe the school so much for our educations that the idea of giving anything on top of that is laughable. And of course, the lower the endowment, the less scholarships given out. Quite vicious cycle.

  2. Good points, Sarah. One thing I would note is that I think many people fail to distinguish between different kinds of debt. Student loan debt is actually not especially bad debt because it tends to be at low interest rates with favorable tax treatment. I know many of my friends wanted to pay it off quickly, but for many people it may be best to keep the debt for a long time and keep other debts lower.

  3. And I should add to that last bit that my wife did come out of college with student loan debt and we consciously took as long as possible to pay it off. So long as we had a penny of other debt (and between entrepreneurship and home ownership, there has been plenty of that), we didn’t pay a cent more than the minimum obligation.

  4. Chip, I took note of the Hex (sp?) student loan system that Australia used when I did my graduate degree down under earlier this decade. Under that system, students who took out government loans didn’t have to start paying them back until their salary reached a minimum threshold. And even then, I believe, the amount former students had to pay back each month depended on the degree to which their salaries rose above that threshold.
    Certainly there people who took advantage of this system, but there were others who were willing to take on public-service jobs, for example, that they would otherwise have been disinclined to take on had their full loan amount kicked in just 6 months after graduation, as is the case here in the US.
    As an American using a US federal loan to pay for my graduate studies, Hex didn’t apply to me!
    (Note: I think the Australian government has changed this program since I left the country)
    And though it won’t take me until I’m 50 to pay off my undergraduate and graduate loans (sorry, Sarah!), I might get close to it. But I consider it a reasonable price to pay for the extra earning potential both degrees have afforded me since.

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