Inez Stepman joins the podcast to discuss this month’s policy focus– student loan forgiveness. As the cries for “free college” have gotten louder, and with a President who is pushing for a student loan relief plan, the question is — does this really help students, especially those that need financial assistance the most? Inez explains why loan forgiveness is costly, unfair, and regressive.
Inez Stepman is a senior policy analyst at Independent Women’s Forum. She has worked in education policy for seven years, and prior to joining IWF was the Director of Education and Workforce Development at the American Legislative Exchange Council. She is the author of numerous policy papers, including the annually-compiled Report Card on American Education. Her thoughts on education policy have been published in numerous outlets, such as Washington Examiner, The Hill, and others, and she frequently testifies as an expert in state legislatures across the country. Finally, Inez also a senior contributor to The Federalist, where she writes on subjects ranging from feminism to fashion, and the Thursday editor of BRIGHT, a women’s daily newsletter.
And welcome to She Thinks, a podcast where you’re allowed to think for yourself. I’m your host, Beverly Hallberg. And today’s episode, we delve into this month’s policy focus, student loan forgiveness. As the cries for free college have gotten louder and with a president who is pushing for a student loan relief plan, the question is: Does this really help students, especially those that need financial assistance the most? Well, Inez Stepman joins us to explain why loan forgiveness is costly, unfair, and regressive.
Before we bring her on, a little bit more about Inez. She is a senior policy analyst at the Independent Women’s Forum. She has worked in education policy for seven years, and prior to joining IWF was a director of education and workforce development at the American Legislative Exchange Council. She is the author of numerous policy papers including the annually compiled Report Card on American Education. Her thoughts on education policy have been published in numerous outlets such as The Washington Examiner, The Hill, and others. And she frequently testifies as an expert in state legislatures across the country. Finally, Inez is also a senior contributor to The Federalist, where she writes on subjects ranging from feminism to fashion, and the Thursday editor of BRIGHT, a women’s daily newsletter. Inez, always a pleasure to have you on She Thinks.
Thanks so much for having me. I’m realizing I need to update my bio. That’s three years old.
I know. I was thinking, I was like, “I think she’s been dealing with education policy for close to 10 years now.” I know you’ve been working on it, and you’re one of the leading people that I like to look to when anything is going on in education, which you have had a busy, busy past year when it comes to COVID and how that has related, but also what we are seeing these days, and that is the cry for free college. We now have a president in office that wants to push forward with loan forgiveness. So I thought as we jump into this timely conversation, maybe you could give us the numbers related to debt incurred for higher education. I think we should just start with how many Americans have student loan debt. How high is the debt? And is it a growing problem?
So this is a growing problem. It is a very real crisis. And I want to start from that because I think sometimes people on the right don’t, or they still have this idea that it’s possible or easy to work your way through university with the kind of job that you could get on nights or weekends, and that just simply ignores the enormous increase in college costs, even over the past two decades. So the problem’s very real. We’re creeping towards $1.7 trillion in outstanding student loans, which is bigger than any amount of debt, other kinds of debt incurred by Americans other than mortgages. So it’s bigger than car loans, it’s bigger than all of the credit card debt in America, so this is a very large problem. But I think oftentimes the solutions that are presented, especially by the left and folks like Bernie and now Biden, don’t get to the heart of the problem, which is: Why is college so gosh darn expensive? Right?
That is the root of the problem because that sort of, okay boomer mentality that it used to be possible to work your way through university is absolutely true, or at least that the loans that you had to take were manageable, and you would pay them off easily within, let’s say the first five or 10 years with the value of your degree. That used to be true, so to me as a policy person, the most important thing is to get to the bottom of the question. Why have college costs increased so much that we are seeing so many students, so many young Americans, coming out of four-year universities with degrees that do not have the value necessary to easily pay off their loans and start life as a graduate, a college graduate? So to me, that’s the problem. And that’s what we should be tackling.
And two questions on that. So when it comes to debt and the loans that students take on, how many of those loans are percentage-wise, are maybe getting it from private funding versus public funding, so taxpayer-backed funding? And then in addition to that, when they take out these loans, is there any type of test or any type of requirement that is asked of them to prove that they can actually make an income off of this degree? Or is the degree that they get not even pertinent to whether or not they can get a loan?
So, the answer is no. The degree they’re getting is not pertinent to the loan, and that’s exactly because of the first part of the question that you asked, which is to say that over 90% of student loans are now originated or held by the Department of Education, ie, Uncle Sam is the one giving out these loans. There used to be a private student loan market. Under that Obama administration, it was folded into the Department of Education. The Department of Education bought up most of these loans. But even prior to the Obama administration, these loans were so heavily subsidized and backed by the government that it was more of a Fannie and Freddie situation if people remember the 2009 financial collapse. It was sort of half private, half public enterprise.
And taxpayers have been involved in backing student loans all the way back to the great society under LBJ. So this is a long state of affairs, and unfortunately, it is a key reason why we’re seeing the inflation of college costs well above not just typical inflation in goods and services, but well above other sectors, even sectors known for serious cost problems, like for example, healthcare. Right? Inflation of college tuition has actually gone up twice as fast as healthcare costs. So we’re always having this big political discussion about how much it costs to be able to get decent healthcare in this country. Well, we don’t talk about the fact that college costs are going up much, much faster even than healthcare costs. And the fact that Uncle Sam backs all these loans and owns all these loans has a lot to do with that, because as you said, as you so rightly connected, there’s nobody looking at these loans when your typical 18 years old walks through the door and says, “I want to go to college. Here’s what I want to major in.”
There’s nobody evaluating that for risk. Nobody is looking at, “Oh, is this degree that you’re thinking of getting, are you likely to be able to pay back a six-figure loan as a result of that degree?” And people like to blame this on the 18-year-old, and I think that’s exactly backward. Right? The idea that your average 18-year-old has more financial savvy or risk assessment than for example, the United States Congress that has set up the student loan market in such a way, or frankly than, for example, private banks that review loan requests all the time and are experts in assessing risk. Those are the institutions that are supposed to look at whether or not it’s a good risk to take, to take out these six-figure loans. Because your average 18-year-olds could not get a $100,000 loan from Wells Fargo, but they can for the federal government if they’re going to college.
And so do you think that there is a problem as well that we have told young people that in order for them to have a career, they have to have an education, they have to go to a four-year school and get that four-year degree. Now obviously, there are certain occupations where that is important when I think of doctors especially and the extended education that they need to have. But have we just told young people in general that regardless of what you want to do in life, just take some general studies to start with, regardless of what you do, this is a time for you to have fun, to experience life, get a degree, and then you can find a job? Have we had this all backward? And beyond the financial advice or lack thereof that we’ve given young people, have we given them bad advice that college is the answer?
Absolutely. I think this is at root a cultural problem. We have made it seem as though the only route to success in life is a four-year university degree. And not only is that not true, but it’s also actually to the extent that it is true, it’s a self-fulfilling prophecy. When the federal government got so heavily involved in giving what are essentially “free loans” of this amount, these amounts to 18-year-olds graduating from high school, we made it a lot harder for people who do choose to evaluate. Maybe they want to go straight into a trade. Maybe they want to go to a two-year community college to save money and then transfer to a four-year institution. We have essentially made it more difficult to succeed without a college degree. We’ve turned the college degree from something that actually added a lot of value in the employment market to a sort of threshold credential that communicates almost nothing, that doesn’t necessarily get you ahead in life, but gets your foot through the door, even in jobs that even let’s say 10 years ago did not require a college degree, and therefore, a six-figure loan.
So, we’ve made it more difficult by creating this, what my friend Neal McCluskey over at the Cato Institute calls a credentialing treadmill. So what we’ve done is make it so that we have to get more degrees in order to stay in the same place as we would have 10 or 15 years ago without the college degree. And of course, you add in the issue of debt, and you see very quickly how a lot of Americans are struggling with this load of debt. And they’re putting off house purchases. They’re putting off car purchases. They’re putting off forming a family because the student loan debt has gotten so out of control. But the solution to all of this is not to put a Band-Aid on it and to forgive one generation of borrowers at the expense of those who come after them. And frankly, those who didn’t make the decision to go to college, to put those costs unfairly on the majority of Americans who do not have a degree, and who are disproportionately actually lower income than those who do have a degree, is a regressive and unfair policy.
And instead, we should be looking at how government policies meant to help “everyone go to college” have made it more difficult both for people who don’t go to college, and ultimately, people who do, but then end up with these ever-escalating loans and student debt after they graduate, that is not justified by the bump in income that they get. So we have to look at the system as a whole and start to dig ourselves out of the hole and the trajectory of college costs, rather than hoping to slap a Band-Aid on it at the expense of the taxpayer.
And is there something that we can do when it comes to the universities that are benefiting tremendously from this? It’s not just the politicians, but it’s the universities that are allowing young people to be saddled with debt, whether or not they have a degree that they can use, and whether or not they even graduate. Many young people don’t even graduate. So how do we hold universities accountable since so many of them are financially benefiting from these policies?
That’s exactly right. Universities are the biggest beneficiary of federalized student loans because they get their money upfront. Right? The university isn’t responsible. It doesn’t have skin in the game when its graduates are then stuck for 20 or 30 years paying off these loans. The university got its money the day you walked onto campus. Right? And as you so rightly point out, actually, an absurd percentage of freshmen don’t even end up graduating, so the six-year graduation rate in four-year universities is only 60%, meaning four out of 10 freshmen do not graduate, not just in four, but in six years. So those students kind of get the worst of all worlds. Right? They have no degree, and therefore, very little salary bump. But they end up having a substantial amount of debt.
But the university system doesn’t get punished for that. And it encourages what I would call frankly, predatory behavior. It encourages universities to expand. We have many, many more universities in this country than for example, per capita, exists in European countries. We just have simply a lot more of them, so that’s one indication that this is a good business to get into. Right? But the other indication is we’ve seen academic standards steadily dropping for who universities accept to come and study with them because all of the financial incentives are to get as many kids through the door as possible, collect their federal loan checks, and not to worry too much if they drop out after, let’s say taking out two years’ worth of loans, or if the value of the degree overall is watered down, and they end up with much more debt than their bump in salary justifies paying off. That’s ultimately not the school’s problem. They have no skin in that game.
That’s one of the things I really think needs to change. We need to hold universities responsible for the success of their graduates, not by micromanaging them from the federal level, but simply by returning some natural limits to the sector that is so inflated by this cultural premise that it’s just good for everybody to go to college. So we’ve essentially paid universities because we think it’s an abstractly good thing. And I would argue not only are the financial consequences for everybody, other than universities extremely severe from having that mentality, but it’s also simply not true. If it ever was true, it’s not true now. I mean, the numbers on, for example, basic literacy of college graduates are astounding. And they’re going down over time.
The numbers on, for example, civic literacy is particularly appalling. Right? We’re graduating people now who can’t name the Bill of Rights. And I don’t mean each of the Bill of Rights, okay, the First Amendment does this, the Second Amendment does this. The Bill of Rights as a whole, we’re graduating people from university, from four-year university, who cannot answer that question in large numbers. So I think that the justification that universities have sold to the body politic, to the American people, and to people in Congress, has been we’re going to make a wiser citizenry and we’re going to be the route to success. Instead, they’ve become a credentialing checkbox, mostly utilized by the upper-middle class and the wealthy at the expense of those in lower-income brackets. And they’re not even fulfilling this kind of abstract vision of creating wiser citizens or people who understand the Western canon or understand the US government very well.
They’re not really justifying any of that either. That’s even to say that seems laughable today. We know that what they’re doing on campus is more akin to training the next army of woke to graduate into the nation’s board rooms and newsrooms than it is any kind of higher learning in the classical sense. So this whole system I think has all of the wrong incentives. It’s subsidized by those at the bottom of the economic spectrum. And those dollars are traveling upwards in the economic spectrum, which is why I call it in my paper, regressive. That’s the definition of regressive. And I think it’s actually culturally bad for the country that so many people are going into universities and learning frankly to hate their country. So all of that put together I think really justifies a total top to bottom rethink of whether it’s worth it for taxpayers to subsidize this particular route to “success.”
And before we continue the conversation on this month’s policy focus, I want to take a quick moment to highlight IWF’s Champion Women Profile Series, which focuses on women across the country and world that are accomplishing amazing things. The media too often ignores their stories, but we don’t. We celebrate them, and we bring their stories directly to you. Our current profile is Congresswoman Kat Cammack, who is representing Florida’s third congressional district. To check out her story, do go to iwf.org to see why she’s this week’s Champion Woman.
And continuing our conversation, Inez, I want to talk about what we are seeing from our political leaders. Now we are used to Congresswoman Alexandria Ocasio-Cortez talking about just straight up loan forgiveness. But we now have President Joe Biden, who is talking about having some type of forgiveness. What is the plan that President Biden has? And how likely do you think with the Congress that we currently have that we are going to see some type of loan forgiveness?
Regardless of the political makeup of Congress, I think it’s quite likely we’ll see some form of forgiveness going forward, and that’s for the very simple reason that we already are going to … The taxpayer is already on the hook for this money. Right? So even before COVID, so there hasn’t been a redo of the numbers since the pandemic, and then an economic downturn that will put many more people in a position where they can’t pay their student loans. But even prior to that, 45% of these loans were expected to be in total default by 2023, so not a decade from now, but just a couple of years into Joe Biden’s term.
And what happens when those loans default is that the taxpayer just has to eat the cost. So fundamentally, we’re going to have some kind of bailout one way or another. And it gives me no pleasure to say that. I think it’s a very large moral hazard. And I think it makes people who did pay off their loans, sometimes with great sacrifice over the years, feel like chumps. Right? Feel like chumps for doing the right thing, and I think that’s never the sign of a well-constructed system when people are being punished for doing the right thing and being rewarded for not doing the right thing. It’s not that I say this with any pleasure, but the reality is the taxpayer is already on the hook for some percentage of these loans that will end up in default.
Now Biden’s plan is somewhat more reasonable, at least the one that he’s shopped around, has been $10,000 in forgiveness. I would like to see that, if we’re going to do forgiveness, I’d like to see two things. One, I’d like to see it targeted actually at people who have two things, one, income from the lower half of the economic spectrum, and two, no higher degrees, ie, master’s, law, and medicine, because unfortunately, one of the lesser-known things about our student loan debt is up to a quarter of that student loan debt is from people who have higher degrees, who have much more opportunity to make a higher salary later in life. So they might technically be cash poor right now, but if you graduate with a medical degree, the ceiling on your earning is much, much higher than it is for somebody with just a bachelor’s, so I’d like to see those two things happen.
And fundamentally, the reason that I think that we really need to talk about who exactly we’re forgiving loans for is that this is by and large is a middle and upper-middle-class problem. There are three student loan dollars out there held by the upper half of the income spectrum for every one dollar that’s held by people in the bottom part of the income spectrum. And that’s a pattern we see replicating in university students themselves, which makes sense. Right? So even compared to 1970 when we started doing some of these loan programs, the federal government first got involved with student loan programs, it did so with exactly the goal to make it easier for people of lesser means to go to university if they were qualified academically. And what we see paradoxically is that after decades of increasing these programs, there’s actually a smaller percentage of students on university campuses who come from the bottom two quartiles of income than there were in 1970.
In other words, this whole program has really benefited the middle class, the upper-middle class. People who are super, super-wealthy generally don’t take out loans. Right? But we’re talking about the upper income, part of the income spectrum that’s really benefiting from all these programs, to begin with. And they’re of course also going to be the primary beneficiaries of any kind of loan forgiveness. So this is not a program for the working class because by and large, there are a lot fewer members of the working class who went to college and incurred college loan debt. This is a program for the children of mostly upper middle-class suburbanites, which by the way are the people who handed Biden the election, so I think there’s a certain sort of political dimension to this as well of just sort of giving benefits to one’s voters or one’s supporters.
But when you hear, for example, AOC or Bernie Sanders arguing for this as some kind of victory for the working class, remember that actually, the people who are going to be benefiting from any kind of forgiveness, by and large, overwhelming, statistically, are people who already come from privileged backgrounds.
And have you seen any trends from COVID? You mentioned COVID earlier, and of course, we don’t have all this data and research out yet. But when you had universities charging the same amount, but yet not having in-person learning, staying that students had to take classes from home, and they’re not getting that college experience. Are we seeing young people think about higher education differently? Do you think the pandemic, there could be a silver lining in the pandemic in relation to higher education, which is young people thinking about a degree and the worth of it in a different way?
I hope that’s the case. We have seen freshmen enrollment drop by somewhere between 10% and 20%, depending on how you look at the numbers. And I hope that is an indication of people reassessing whether or not it’s worth it to go into this much debt. And I hope that beyond COVID, that this next generation, the zoomers, I think you and I are both millennials, our generation were the guinea pigs. We all heard from a young age that the only route to success is to go to a four-year university. If you’re a good student, if you’re a good kid, that’s the goal that you’re aiming towards.
I hope the generation that comes after us is looking at the debt burden of millennials. I hope that they are looking at the decreasing value of a college degree and starting to rethink that. And I hope this unfortunate time that we’ve all been living through with the pandemic will kickstart some more serious thought on the part of both students and parents, frankly, who are heavily involved in these decisions and often are the ones shelling out quite a lot of money for their students to go, for their kids to go to university, to think really hard about whether it’s worth it, not just from a financial perspective, which is what we’ve been talking about and is obviously the topic of generally this podcast and my paper, but also from an ideological perspective, whether it’s worth it to put your child in so much debt going forward, just to have them essentially go through woke-ness rites. Right? Which increasingly, even the sciences are getting infected by critical race theory, by gender studies. Right?
And really, whether that degree is worth as much as you think it was 10, 15, 20, 50 years ago. And I really hope that this is the beginning of a large rethink, not just on the policy side of how we spend our money and whether or not it’s worth it to subsidize this particular route to success over, for example, apprenticeships or skilled trades. But also from a cultural perspective, whether we ought to continue, as a matter of sort of legacy or grandfathering in universities with a level of respect that perhaps was once justified when they were truly teaching the classics when you could expect that if you went to a four-year university, you would be a truly educated person in the classical sense of the word.
It simply isn’t true anymore. And I think it’s time that we forget about that notion, and see universities for really what they are, which is largely financially predatory and an arm of the far progressive left. That’s largely what the roles that universities play in our society today. And I think we’d be well placed to just take that head-on and restructure our policies and our thinking accordingly.
Yeah. And I agree. I think one of the silver linings of the pandemic is it’s causing us to think about a lot of things differently. I think higher education is one of those. Before I let you go, I’m going to throw you a little curveball. I didn’t tell you I was going to ask you this question. But in addition to you writing about education, you also write about fashion. I’ve always appreciated the links that you have put out there when you write your BRIGHT newsletter. I am curious. During the era of COVID, we’re closing in on close to a year of COVID. What has it been like for you, who loves fashion, when you haven’t gone to parties when you don’t have a place to dress up? What has it been like for you? Are you still shopping? Are you still purchasing things? Or have you succumbed to yoga pants like the rest of us?
So, unfortunately, I really have succumbed to yoga pants, if I’m being honest, because there isn’t anywhere to go. I dress for running because that’s the only activity that I have on the agenda, other than working. But I hope to be back soon doing some … I hope that life will be back to normal, to some level of normal soon, and we’ll be able to dress up again, and I’m excited to do that. I’m very curious to see.
I think it’ll be really indicative of where we are as a society if when we come out of COVID and lockdowns, whether the runways and fashion will be maximalist or minimalist if we’ll sort of paring down and live more minimalist lives and be sort of grateful for what we have as a result of going through this experience, or if it’s going to be like a roaring 20s maximalist, champagne party atmosphere afterward. And I would expect fashion to reflect one or the other, so I think it’ll be really interesting to see based on where society goes after this, where fashion goes, and whether it’ll reflect something about us as we come out of this experience.
Yeah. Well, I’m excited to see what it is. I’m excited to see any type of runway show because that means we’d be headed into a new normal, so I’m excited about that. But for now, Inez Stepman, thank you so much for joining us again. The policy focus this month is loan forgiveness, costly, unfair, and regressive. You can find it on iwf.org. Thank you all for listening. And thank you, Inez, for joining us today.
Thanks so much for having me, Beverly.
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