"If Congress doesn't act, it's the students who'll pay.
The right and left should join on this like Kim and Kanye."
Okay, so that was pretty great. But since late-night shows aren't always the most illuminating venue for policy, I thought I might add some background music for those confused by the student loan debate. As I see it, there are the congressional politics, the presidential politics, and the bigger picture.
The congressional politics are pretty boring, if you don't mind me saying so. President Obama wants to keep the interest rate on student loans at 3.4%, which is historically very low (but then again, so are most rates today). This plan would cost about $6 billion next year. Otherwise, rates will double for newly originated loans. Guess how Democrats propose to pay for this? Higher taxes. Guess how Republicans feel about higher taxes? Not good about it, is how. There's no telling how thrilling the debate over offsets will be.
The presidential politics are somewhat indistinguishable from marketing. Both candidates feel vulnerable in the youth demographic. President Obama's star is on the wane among young voters, whom he'd like to re-engage by talking about college costs. Mitt Romney faces a 17-percentage point deficit against Obama among voters between 18 and 29. He, too, supports freezing low rates.
As they're running for president, both men are in the business of making promises that strain credulity. One of those promises will be that, if elected, they will work tirelessly to make college more affordable. But the economics of college aren't so pliant that the right president can simply grab the tuition inflation curve and bend it to his will. Education is getting more expensive for many of the same reasons that health care is getting more expensive. It's labor intensive, it defies easy productivity gains, and it's a human capital investment that lots of families are willing to overpay for. If Obama or Romney have good solutions to all three problems, they deserve a short-term dictatorship in Washington.
The bigger, most interesting question about student loans is what role government should play in getting kids (or adults!) to go to college -- and whether Washington's good intentions might have negative consequences.
The federal government belongs in the student loan business for at least two reasons. First, it's the only financial institution with the means to lend cheaply to students. After all, who else wants to make a low-rate loan to a 18-year old kid with no earnings, no credit history, and zero collateral when he won't start paying interest in four years, at the earliest? Second, it's the only institution that can reap the fullest benefits from the college investment. Even if taxpayers lose money on student loans -- which they can -- we benefit from the outcome of those students loans. People that graduate from college are less likely to be unemployed, less likely to be on Medicaid, more likely to earn a higher wage, and more likely to pay net positive federal income taxes. Remember: There is a high cost to students arresting their education after high school. A 2012 U.S. study put the final cost per NEET youth (Not Engaged in Employment/education, or Training) at $37,450, including lost earnings and health spending. Paying students to go to college costs money. Not paying students to go to college might cost money, too.
Even if student loans are a reasonable investment for government to make, it's equally reasonable to wonder whether subsidizing college is responsible for higher college costs. As James Surowiecki has written eloquently, tuition is rising for reasons that have nothing to do with Stafford loans. But as Jordan Weissmann has written for us, the economic literature found that funneling money to middle class students has contributed to college costs rising even more than they would have without loans. The evidence is mixed.
But the bigger picture is clearer. College costs more money that most students have in savings. Government is uniquely positioned to lend some of the difference. Everybody benefits from higher educational attainment -- taxpayers, included.