(Part 1) College Costs and Loans: $1.7T

Not that you asked, but what is $1.7T to you?

I am a debt hawk. If I borrow money, I have a plan to repay it, if not in the next month (credit card debt), then on-schedule (mortgage). And I believe others should plan similarly (even if those plans derail at times, there should be a plan).

Entities who take out on debt on behalf of others need a firmer repayment plan as stewards of the debt. Those entities could be companies, non-profits, various levels of government, et al. At the federal level, I am in camp of some debt is healthy, unfettered debt is unhealthy.

The Feds Keep Growing The National Debt

In 2020, the federal government had revenue of ≈$3.4T and spent ≈$6.5T. That difference is the deficit, and it is added to the national debt. That is simplified a little.

The blue dots represent the Revenue, and the green dots are Spend.

Graphic using shaded dots that represent revenue and spend at the federal government for 2020
Government Spending vs Revenue for 2020

The total national debt is ≈$28T. There are various views on what constitutes a healthy national debt. Typical views include: can we service the debt and how does the debt compare to the GDP? Economists and policy makers can debate those.

The most graspable is the Per Capita view:

Graph showing national debt average per person from 1970 to 2020
YCharts, US Public Debt Per Capita over time

You owe $85K of the National Debt

That is your share. Taxes you pay go toward servicing that debt, plus other government functions.

Do you really owe it? Roughly 47% of tax revenues are income taxes, and possibly you pay federal income tax. You don’t owe the money directly, the government (the stewards) owe it on your behalf. You just get to pay the government through taxes.

Ten years ago, the per capita debt was ≈$46K. In 1970, it was ≈$1.9K per person.

To reverse that, in 1970 there was ≈$390M in national debt, today it is ≈$28T. That is a growth rate of 24.5% per annum. (To be fair, it is growing closer to 7% over the last 10 years, which is roughly doubling from $14T to $28T).

The Good News(?)

If you are comfortable with a national debt at ≈$28T, the good news is that government backed student loans is already in that number. Private loans are not in that amount.

If government backed student debt is canceled (in part, or fully), there is no change to that ≈$28T.

What changes is how that debt is repaid. Instead of the debt holders repaying what they are responsible for ($1.7T), all taxpayers now pay for this.

(As an aside, if the government covered private-backed loans, that would add ≈$123B, per MeasureOne, to the national debt. I am purposefully excluding this as it almost a rounding error.)

What is fair?

Is it fair to ask a nation of taxpayers to pay for the benefits of a small class? That question comes up often in these discussions. Someone will point out back in my day we paid our own way to which someone responds college was affordable then! Both could be true statements, but are not relevant. Or someone will say, I did not go to college. Again, not relevant to the question.

What people are truly asking is what about me? That thinking completely ignores that societal needs sometimes come ahead of individual needs.

Again, is it fair to ask a nation of taxpayers to pay for the benefits of a small class?

We already do collect taxes from the many for the direct benefit of individuals. Public K-12 schools are the most obvious examples. Social Security has roughly 178M people paying into it, and 64M receiving benefits. Some states have a state disability insurance plan, in which the majority of workers pay into it, but few receive benefits.

So the question isn’t if we should, but under what conditions do we tax the many in favor of the few.

Taxing the Many

I am using Direct Benefit as a term to indicate that the person receiving the education is the primary benefactor, whether that is a K-12 or post high school education.

What Direct Benefits do college graduates have? Wages. Unemployment.

graphic showing unemployment rate vs education level
U.S. Bureau of Labor Statistics

A college graduate earns $1,305 per week compared to a high school graduate of $781 per week. That is $524 more per week; $27,248 per year; or after 40 years of work, $1.089M more. Not all of those values are constant, but the results absolutely lead to, at an aggregate: college degree = greater lifetime earnings.

College graduates enjoy a lower unemployment rate as well. So while a college graduate will have $1M more in lifetime earnings, that is compared to a high school graduate who is never unemployed — though, the high school graduate is more likely to be unemployed.

The college graduate will earn more per year and be unemployed less. And yet some people who want student debt cancellation are asking people who earn less and work less to pay for the college education of others.

How is that fair to the high school graduate earning 40% less per week?

And to give some perspective, this is not a few number of people. The majority of the population do not have a college degree. Roughly 32% of the population over the age of 25 have a bachelor degree.

Indirect Benefits

While two Direct Benefits are noted above, there are Indirect Benefits.

A high school graduate who never attends college will see a doctor at some point. They had teachers in K-12, most of whom had a college degree (if not all). They might need a lawyer someday. People with college degrees are engineering safe buildings and bridges, working on vaccines to pandemic viruses, and more, all to the benefit the entire population.

There are benefits to everyone when there are college graduates in society.

Should everyone pay for those benefits? Or should only those who directly benefit pay?

Summary and Next Steps

I disfavor cancelling student debt, and not because this is student debt. I disfavor cancelling student debt for the same reasons the federal government should not take over other debt obligations (e.g., credit card, mortgage, vehicle, business debts), and that is because the federal government cannot afford to forever take on additional debt.

Plus, asking people who earn less to pay for other peoples debt, when the debt holders earn more, is not a fair or balanced solution to those who did not attend college.

In Part 2, I will note why and how we should fund a portion of college costs.

(Jump to Part 0, Summary)

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