Opinion/Stead: Colleges helped drive student debt to $1.5 T. They must help in debt relief

When Elliot Ness raided bootlegging establishments, did Al Capone get to keep the money? If we are going to 'forgive' college loan debt, do schools get to keep all the money they collected from the usurious loans?

The arguments have not mentioned colleges at all so far. There is great debate about the economics and ethics of erasing student debt that was freely entered into by transferring the debt to those who never incurred it by paying it with tax dollars. There is anger on the part of those who entered into loan obligations and dutifully paid it back by working hard, skipping luxuries, and even greater anger from those who never attended colleges at all.

Back in 2007, student loan debt was $642 billion; in 2020, it was $1.5 trillion an increase of 144%. The government student loan program created in the 1960s was never designed to handle numbers like these. The program was administered by banks until 2010 when Congress federalized the program and loans were issued by the Treasury Department. The idea was that there would be no scarcity of funds during a recession but a guaranteed loan program quickly outpaced inflation as well. If this pattern does not change, some 40% of college borrowers who entered college in 2003 will be in default by 2023.

The principal increases in college costs have been fees such as room and board. But fees cannot be funded with Pell grants which only pay tuition. That makes them less valuable for defraying the overall costs of college but gives the colleges themselves greater profit margins. There is no ceiling on how much they can charge for what was once 'add-ons' that now can cost as much as tuition itself.

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In tandem with this, the insistence on making a bachelor of arts degree merely a new form of high school diploma in the job market has made advanced degrees a prerequisite for the kind of jobs and careers that would allow student borrowers to repay their loans. But by making access to borrowing easier, it allowed colleges to award many more advanced degrees in a Ponzi scheme-like fashion.

"What's that?  The BA we sold you didn't get you the career you trained for?  Hey, maybe you just need a better credential … yeah … right here, I got a shiny new master's degree that just came in … I can let you have it since you are such a good customer and all …"

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We as a society give institutions of higher learning a lot of credit. They are a special class of nonprofit and do not have to pay property taxes on their campuses. And they do not have to pay property taxes on their investment properties either — some of which are stores and restaurants that directly compete with private businesses. Cities such as Boston and Cambridge have struggled for years to collect some kind of PILOT (Payment In Lieu Of Taxes) money from universities for services such as police, ambulance and fire department protection.

What the colleges do not pay, the other property owners must subsidize. This is perhaps a precursor of the idea that whatever tuition is not paid should be subsidized by the people who did not attend or incur the debt.

The main thing that wholesale forgiveness will bring about is the subsidy not to the borrowers, but to the schools that raked in the cash. There will be absolutely no incentive for them to stop practices such as forcing students to purchase textbooks at the college's store or charging students for access to materials they need to comply with course requirements.

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Colleges do have an economic crisis of their own, however. When the Baby Boom generation graduated from high school, it became more common for people to go to college, if for no other reason than to avoid the draft. A bachelor of arts degree became more common, so in order to indicate advanced proficiency, you needed to go for a master's, and so on.

After all the boomers graduated, colleges found they had expanded but the flow of incoming students was decreasing. And they were stuck with an economic system like tenure, which guaranteed a salary to a scholar who barely came to the campus and the financial obligation to pay their salary regardless. They had expanded to a point where it was almost impossible to cut back, so it became important that "Every child should go to college", perhaps the stupidest thing President Bill Clinton ever said.

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It is not right that young people were lured into debt by people from whom they should have been able to get good advice. To make this a battle between college students and disaffected taxpayers is wrong. The third party in these transactions — the colleges and universities themselves — should write off tuition and forgive debts themselves. You do not have debt without a creditor and the time has come to examine the finances of colleges and universities a little more closely and make their own cutbacks. We have given them various financial breaks — it is time for them to directly extend breaks to the young people to whom they serve as creditors.

Al Capone had a vault.  Maybe the Ivy — and lesser foliage — leagues do as well.

Cynthia Stead is a columnist for the Cape Cod Times and can be contacted at cestead@gmail.com. 

This article originally appeared on Cape Cod Times: Student loan forgiveness debate rarely includes college culpability