College Student Loan Debt Problem: Senator Warren’s “Fix” Will Make Things Worse

by | Jan 13, 2022 | Education

Federal college subsidies have increased the cost of higher education, lowered its standards, created a labor market glut of graduates expecting “good” jobs because they’ve been to college, and led to a horde of people who can barely repay their college debt.

Foremost among the politicians who believe that there are votes to be garnered by having the federal government do something to alleviate the burdens of college loan debt is Massachusetts Senator Elizabeth Warren. Her political stance is resolutely “progressive,” which is to say, she favors federal control over nearly all aspects of life in this country because freedom is unfair and unscientific.

A recent piece published on Inside Higher Ed focused on her ideas for “fixing” what she regards as a terrible student debt problem.

What is bothering the Senator?

She says, “Through the decades, the cost of higher ed has increasingly been shifted away from taxpayers and on to families. Families that can afford to send their kid to college—and that kid graduates debt-free—have moved their next generation forward faster and further than families that don’t have those resources. It’s that inequality that lies at the heart of it that has pulled me into this debate from the beginning.”

Senator Warren thus repeats the leftist trope that states have been steadily shifting away from providing the financial support for their colleges and universities and “making” the actual users pay more of the expense. Cato Institute’s Neal McCluskey has shown here that the supposed disinvestment in higher education just hasn’t happened.

But let us assume that Senator Warren’s statement is correct. Would it be so bad if more of the cost of attending college were borne by students and their families, with less falling on the taxpayers, the majority of whom did not go to college and don’t have any children who do? After all, those with college degrees tend to out-earn those who don’t, so isn’t it unfair to compel the former, through the taxes they pay, to subsidize the latter?

One notable economist who made that observation was Gordon Tullock. In his 1983 book Economics of Income Redistribution, he wrote:

I have already explained my views that [government aid to] higher education is a highly regressive scheme for transferring funds from the people who are less well-off to those who are well off. The only advantage I can think of this from a social standpoint is that it pays my salary. I doubt, however, that anything will be done about it since the beneficiaries are, politically, extremely influential and, in fact, control the communication channels, so the people injured by it will probably never find out they are injured.

Senator Warren would probably be surprised (perhaps even horrified) to find that one of the great exponents of Public Choice Theory agrees with her that federal student aid programs are regressive.

But Warren is just getting warmed up in her egalitarian indignation. Citing data showing that white student debtors owed only 6 percent of their loans 20 years after entering college, whereas black debtors owed 95 percent, she declares, “There’s a profound racial justice issue that lies at the heart of this. That means racial inequality and wealth inequality that’s already out there is exacerbated through higher ed rather than dampened.”

Statistical disparities between groups don’t prove “injustice” has been done, as Thomas Sowell and other scholars have long observed. Many of the black students who borrowed for college are doing quite well and some of the white students are struggling desperately with their heavy loan payments. And it isn’t a matter of injustice (racial or otherwise) that some student borrowers made poor decisions on the relationship between the cost of their education and the benefits they’d derive after graduation.

What we can say, however, is that more black students than whites have been lured into poor college decisions. For the last 30 years, politicians like Senator Warren, and especially President Obama, spread the idea that going to college was a sure-fire “investment” that would pay off handsomely. The “college for everyone” bandwagon gained great momentum. High school counselors advised even weak students that they should go to college.

Behind this was the assumption that the economy would generate “good jobs” for all of the college graduates. At one time, back in the 1960s and 1970s, college graduates were in high demand and most of them landed jobs that enabled them to pay off whatever they had borrowed to attend. The problem was that over time, as more and more academically weak students enrolled, the level of competence fell. So did academic standards, as colleges chose to keep students happy (and paying their tuition) with inflated grades and watered-down curricula.

Furthermore, with colleges willing to accept almost every student who applied, high schools could and did relax their standards. Academic rigor ratcheted down throughout our education system.

At the same time, we began to experience credential inflation, namely the tendency for employers to insist that job applicants have college credentials for work that had traditionally been done by high school graduates. Due to the federally-fueled “college for everyone” concept, many jobs now “require” college degrees, not because the work is so mentally demanding that only a college graduate could possibly learn it, but because employers use college credentials as a legal means of screening out presumably less reliable high schoolers.

And one more thing—college now costs far more than it used to. The gusher of federal money for higher education enabled college officials to charge more and spend more—with most of the added spending being not for educational improvements but instead for huge bureaucracies and pricey amenities to attract students who are mainly interested in fun on campus.

Summing up, federal college subsidies – a plethora of grants and loans – has increased the cost of higher education, lowered its standards, created a labor market glut of people expecting “good” jobs just because they’ve been to college, and led to a horde of people who can barely afford to repay the debts they have incurred in pursuit of their degrees.

Yes, enough is enough.

Unfortunately, Senator Warren’s solutions would only make matters worse. She wants President Biden to cancel $50,000 in debt for students by executive order, a continuation of the government’s “pause” on collecting student loan repayments, and more loan forgiveness for people with disabilities and who work in the public sector. All of those measures might look “compassionate” but they dig America’s debt hole even deeper. They would encourage even more marginal students to go to college, expecting that some or most of their cost will be offloaded to the taxpayers.

There was never any legal authority for federal college financial aid. Read the Constitution and you will not find any provision saying that the government may lend or give money so students can go to college. Beginning the aid programs was one of the worst mistakes the nation has ever made. It has indeed had terrible consequences for many people now awash in debt, as well as for the taxpayers who have to foot the bill for much wasted education.

The only way out is to stop all the aid programs. Congress should legislate an end to them, perhaps in five year’s time. Individuals and educational institutions will adjust to life without government funds. Students who really aren’t interested in formal education after high school will find better things to do; colleges will have to pink-slip lots of unnecessary administrators and professors in disciplines that can’t support themselves.

We do indeed have a college debt problem. The solution is to pull it out by the roots, which means ending federal student aid.

Made available by the American Institute for Economic Research.

George Leef is director of editorial content for the James G. Martin Center for Academic Renewal. He holds a bachelor of arts degree from Carroll College (Waukesha, WI) and a juris doctor from Duke University School of Law. He was a vice president of the John Locke Foundation until 2003. A regular columnist for, Leef was book review editor of The Freeman, published by the Foundation for Economic Education, from 1996 to 2012. He has published numerous articles in The Freeman, Reason, The Free Market, Cato Journal, The Detroit News, Independent Review, and Regulation. He writes regularly for the National Review’s The Corner blog and for

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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