I recently saw an article that asked this question: What if students were able to invest their student loan payments towards retirement, instead of paying off the loans with that money?
But a college loan is supposed to be an investment. That is, you borrow the money to get a degree, and either (1) you make more money than you would have without the degree, which means you can pay back the loans and save for retirement, or (2) the knowledge you gain makes you happier over the course of your life, even if it means you don’t get the kind of income bump that comes from getting a ‘practical’ degree.
Unfortunately, people often make poor investment choices. This is true when investing in the stock market, real estate, new businesses, cryptocurrencies, precious metals, and so on. It’s also true when investing in a college degree.
So the call for ‘free college’ is very much like saying: Let’s hand a big pile of dough to everyone who wants to invest in a degree, and let them invest it in any degree, from any school. And then, when some of those investments turn out to be horrible, let’s bail out those investors with social safety net programs.
When you put it that way, it seems kind of dumb, doesn’t it?
But what if we put the government in charge, not just of coming up with the green, but with directing the investment as well? I mean, the whole point of modern government is to keep people from making the wrong decisions, right? So this would fit right in with scores of other government programs.
So the New Green Deal would be: You can go to college for free, but you have to go where we tell you, and study what we tell you, and only if you don’t graduate would you have to pay it back. And of course, the government would get out of the business of guaranteeing other kinds of student loans.
How would we pay for this? With a special surtax on incomes for people who take the deal, which would be reinvested in the program, for use by future students.
For example, we might calculate the marginal value of your degree by subtracting your actual income from the median income, and take 20 percent of that as a ‘pay it forward’ amount. (Woke graduates could volunteer to contribute an additional amount to be used to forgive loans that pre-exist the program.)
It’s always helpful to have some numbers to think with, so let’s say Bob gets an engineering degree under this program. The median starting salary for engineers is about $70,000. The median wage is about $30,000. That’s a marginal value of $40,000, and 20 percent of that is $8,000. So Bob pays a surcharge of $8,000 off the top, and pays regular income taxes on the rest.
Now that might seem pretty stiff, but keep in mind that Bob is still making $32,000 more each year than he would have been if he didn’t get the degree (some of which he can be saving for retirement). So he’s really got nothing to complain about. And over a 40-year career, even if he only gets cost of living raises, he’ll pay back $320,000 in inflation-adjusted dollars, which should more than cover the cost of his loan, especially if he was sent to a state university, instead of an elite private college. If he gets promoted, he’ll end up making — and contributing — even more.
So students get better educations and higher incomes, becoming net contributors (of taxes) instead of net consumers (of welfare); society ends up with more engineers and fewer gender studies majors; more employers can ‘hire American’; and over time the program pays for itself. That is, it’s an investment, not an entitlement.
Unless you own a bank with a portfolio of guaranteed student loans (or you’re one of those free-market fanatics), what’s not to like?