Inez Stepman joins the podcast to discuss this month’s policy focus: Taxing Universities. We look at the reasons why student debt is a burden on so many Americans and why a bailout is regressive and unfair. We also consider how universities have made so much money in the process. Taxing universities places the responsibility—and the bill—where it belongs.
Inez Feltscher Stepman is a senior policy analyst at IWF and host of High Noon with Inez Stepman, a podcast that hosts conversations with heterodox thinkers on a variety of important cultural and political subjects. She is a Lincoln Fellow with the Claremont Institute and a senior contributor to The Federalist. Her work has additionally appeared in outlets such as USA Today, The Wall Street Journal, and The New York Post, and she has made appearances on Fox News, PBS, CSPAN, and NPR.
TRANSCRIPT
Beverly Hallberg:
And welcome to She Thinks, a podcast where you’re allowed to think for yourself. I’m your host, Beverly Hallberg, and on today’s episode, it is our monthly Policy Focus. This month’s focusing on a policy paper called Taxing Universities. We’re going to look at the reasons why student debt is a burden on so many Americans and why a bailout is regressive and unfair. I think it’s important for us to discuss this topic since understanding the reasons why universities have gotten so rich, places the responsibility and the bill right where it belongs. And joining us to break it all down is the author of the Policy Focus, Inez Stepman.
Inez is a senior policy analyst at IWF and host of High Noon with Inez Stepman, a podcast that hosts conversations with heterodox thinkers on a wide variety of important cultural and political subjects. She is a Lincoln Fellow with the Claremont Institute and a senior contributor to The Federalist. And you probably have seen a lot of her work, which has appeared in outlets such as USA Today, The Wall Street Journal, Fox News, and Fox Business. And as always, a pleasure to have you on She Thinks.
Inez Stepman:
It’s great to be here, Beverly. Thanks.
Beverly Hallberg:
And I want to let everybody know if they want to look at this Policy Focus, you can go to iwf.org and find it there, but we are going to dissect it here. And I thought we would start with just the big question. How big of a problem is student loan debt? What are the numbers?
Inez Stepman:
Sure. This is also a huge burden on especially young Americans. So we’re talking about 1.8 trillion dollars in debt. We’ve seen student loan debt surpass all other debt except for mortgages, so card debt among other things. And one in three Americans under the age of 30 has student loan debt. A lot of the times, I think when we talk about this issue on the right, we don’t want to acknowledge for a variety of reasons how difficult the burden is of student loan debt. For one, because we have this personal responsibility sort of idea going into it, and we think, well, if you signed on the dotted line, you took out a loan, now you should pay it back.
And then also a combination of just not maybe understanding how the numbers on getting a college degree, how much those numbers have shifted and become unreasonable in the last 10 to 20, maximum 30 years. Getting a degree in the 1990s is a wholly different financial proposition than getting a degree, let’s say in 2020. And I think we have to update our policy to take into account the realities of that, which is that student loan debt is a really serious problem for a lot of Americans.
Beverly Hallberg:
Well, let’s talk about those decades, the 90s versus where we are today. You say it’s very different. How much more debt are people incurring today than what they did back then? Of course, accounting for the difference of inflation.
Inez Stepman:
So if you went to a public university 20, 25 years ago, it was half in real dollars, half the cost that it is today. Tuition prices at private universities have tripled in the same time, and so it’s really just not possible. When you’re talking now about, let’s say $80,000 to get a four-year degree, which would be actually rather reasonable when you include housing and accelerated costs. That would actually be rather reasonable. That would be something closer to what the sticker price of a public university would be today. $80,000 over the course of four years, it’s not the sort of thing that somebody at 18 can generally make up by working part-time, for example. It’s just too big.
And also the value proposition has changed. So it’s still true that people who get four-year college degrees make more over the course of their lifetimes than people who did not choose to go and get that four-year degree. But there are two caveats in that. One, those benefits are really leveling out. The more and more people get degrees, the value proposition in terms of how much more you make than if you don’t get that degree is much worse today than it was 10 or 20 years ago. So those benefits are really leveling out at the same time as cost is skyrocketing in real dollars. So those two things are coming closer and closer together.
Beverly Hallberg:
And be-
Inez Stepman:
Go ahead.
Beverly Hallberg:
Go ahead. I was just going to say, because of this debt we’re seeing… And I’m not sure if you have seen this as well, but I’m hearing more and more discussions about the trade industries, whether that’s electrician or contractors or plumbers, fill in the blank of these different trade skills. Are you seeing, and I know this isn’t specifically in the policy paper, but are you seeing more young people taking a more critical look at college and saying, Hey, is it really worth it for me to go? Or is this just kind of that rite of passage? You go for four years, have your four years of fun, it’s just something that you’re expected to do? Or are we seeing people change their mindset?
Inez Stepman:
I definitely think that you see Gen Z reevaluating whether the advice that our generation of Millennials got was the right one, which was go to the best college that can have you. In terms of the U.S. World News Report, it doesn’t matter how much debt you’re going to have to take out, you’re going to easily pay it back on the flip side. I think the awareness of the college debt problem is much higher in the next generation coming through now. I think both parents and students are making different decisions, and those are probably wise. But part of the problem is that with the policy choices we have made, we’ve created a landscape that’s gotten much harder no matter which direction you go.
So if you’re a graduating high school senior and you’re deciding whether or not to go to a four-year institution, path A is you go to a four-year institution, you take out government loans, all of these loans are government-backed. So 93% of these loans are owned by the Department of Education. You take out your government loans that are, as I said, the value proposition is getting dicier and dicier over time. You know that on the flip side when you graduate, if you graduate, because only 60% of people graduate if in six years, so nearly half the people are getting the worst deal possible, which is debt and no degree. But if you graduate, you know that you’re going to have this unsustainable level of student loan debt.
Okay, but what do you do if you go the opposite direction? There are a lot of really great options that don’t include a four-year degree, but those policy options are not heavily subsidized by the government. And the result is that because of degree inflation, and because we’ve put everybody on this credentialing treadmill, there are fewer jobs available today to folks who do not have a four-year degree than there were again, 10, 20, 30 years ago. So if you look at job posting websites, the same job with the same job description 20 years ago would not require a degree, but today it does. So you’re kind of getting pinched out on both sides. Either you take on the debt that is unsustainable, you know is going to be a problem, or you’re getting increasingly locked out of jobs that don’t actually require a four-year degree.
There’s not a lot of… There’s less and less correlation between what people are learning, and I think everyone intuitively knows this. What people are learning in a four-year college and what’s actually useful for employers. So this entire system though is the result of policy choices and enormous amounts of money that are flowing towards the university track. And universities have gotten really rich off of this, but everyone else has gotten kind of screwed. The people who have the degrees have unsustainable amounts of debt. The people who don’t go and get those degrees are having a harder time than they did 10 or 20 years ago, getting that first step on the ladder and then getting into a trade or a career. So it’s really not working out for basically anyone except the very, very top percentage of universities. If you’re going to Harvard, you’re probably still fine, and the universities themselves.
Beverly Hallberg:
And we’re going to get into some of those ways that universities get rich. But before we get to that, I want to talk about some of the politics behind this. So of course, there was a huge Supreme Court decision about student loan debt and Biden v. Nebraska. The court struck down the Biden administration student debt plan. So that was a huge loss for Joe Biden. Yet we saw on July 14th that his administration announced a new plan for fast-tracking initial 39 billion dollars in forgiveness. My first question to you is from a constitutional perspective, how is he able to do this when the Supreme Court just determined what it did?
Inez Stepman:
Well, the legal basis for the plans are completely different. One was a generalized forgiveness. This is about tracking people into forgiveness plans that already exist. Now it’s still legally dicey, we’ll see what the court does with it. But you can expect that there will be another plan after this, just like I suspect that student payments after this two-and-a-half-year pause will not resume in October even though they’re supposed to. That’s not something the Biden administration wants right before an election, to restart student loan payments for millions of people. But that’s the problem. The Biden administration’s already gotten everything they wanted out of the forgiveness plan that was struck down.
Legally, this was an open and shut case. It wasn’t difficult. Everyone remembers even Nancy Pelosi saying that the Biden administration did not have the power to unilaterally cancel student loan debt like this, but they got everything they needed out of it. They got a bump of young people going to the polls because this kind of debt forgiveness plan is both popular and polarizing. So it’s popular with the people who are going to benefit from it, which really gives the Democratic constituency a boost. It’s very, very unpopular with people who already paid off their loans or who didn’t go to college because they sense that they are the suckers in this proposition.
But it works out very well as a wedge issue for the Democratic Party, and it’s going to continue to working out for them as the student loan burden gets bigger and bigger. But what these student loan cancellation plans don’t do is solve the cost problem, which is why even if the Biden plan had stayed in place, within four years, and actually probably faster than that, but if we took 2019 data because everything’s on pause now, right now. So if we took 2019 data, we would be right back where we started in four years. So this whole huge cancellation… So estimates anywhere between 500 billion and a trillion dollars in cancellation, four years, we’d have the exact same level of student loan debt. And that’s because both the costs and the debt are in a cycle that just isn’t fixed. It’s actually made worse by bailouts.
Beverly Hallberg:
Well, I want to talk about the polarization side of this. I agree that there are a lot of political positives for Joe Biden to talk about it. He knows that, that’s why it’s continuing to be discussed and new policies are coming forward. But the polarization, you talked about two different things in this policy report, which stand out to me in reference to that. You say it’s regressive and you say it’s unfair. Can you break down those two terms? What do you mean by that?
Inez Stepman:
Well, the people who hold student loan debt are disproportionately from the upper middle-class range. If you’re talking about billionaires, they’re paying cash to go to school. But everybody else in that upper middle-class chunk, especially professionals like doctors, lawyers, people with master’s degrees, they’re carrying a disproportionate amount of debt, and that’s still a problem for them. But the people who would ultimately end up paying for this kind of bailout are people who didn’t go to college at all. So you’re asking mechanics in Ohio to bail out people who have law degrees from Harvard. This is not an equitable… I know the left loves that term. This is not an equitable solution for people asking people at the bottom of the income spectrum to pay off the loans of those who are in the middle to top part of that spectrum.
And the reason that debt is disproportionately held by the rich, which I think is very counterintuitive to people, they’re like, well, rich people don’t hold debt. They can just pay for their degrees. The reason that’s true is because the bottom half of the income spectrum isn’t even going to college. So since we started these government loan programs back in the 60s and 70s, we actually have a smaller percentage of people from the lower half of the income spectrum attending college relative to the other parts of the income spectrum as we did when we started. So the point was to send people who didn’t have the means to college. But what we actually did with this escalating cost cycle is lock everyone who was not in the top half of the income spectrum out of college altogether.
So this has been a really unsuccessful program. So the regressive part would be that for every $1 to the bottom quintile of earners, $7 would go to the top. That’s what I’ve been talking about. The unfairness is just kind of obvious. It’s obviously unfair to ask people who sacrificed to pay off their own student loans or people who made the tough choice not to go to university, to ask them to pay for people’s degrees that they didn’t take out. They didn’t take out that debt, they didn’t sign on the dotted line, and yet here they are, the costs are socialized, but to a large degree, the profits are going to the universities that are not directly part of the federal budget.
Beverly Hallberg:
And so I think that there is a common ground with all of this. I think we can all recognize college costs far too much. Student loan debt is a real thing. The question is what do you do about it? Now, what you propose in this policy solution is to say that we need to tax universities. Break that down to us. What does that mean? How would it work?
Inez Stepman:
Yeah, I think this is basically the just solution here. We’ve just talked about how people who are taking out this student loan debt really are being handed a legitimately much worse proposition than they were 20 or 30 years ago. And I also think it’s a bit much to expect 18-year-olds to have a better financial sense than U.S. Congress. In any other context, we would talk about these loans as predatory. The government extends basically a no-questions-asked, very large loan to any 18-year-old who’s graduated from high school as long as one college will accept them. Well, that’s a huge mal incentive in itself because the colleges get their money upfront.
So they’re bombarding these teens, everybody, if you remember being 16, 17 being 11th grade and applying to schools, or if you have kids that are that age, you know that you’re just being bombarded with advertisements and the colleges are really trying to make this an attractive proposition, even if it makes no academic sense. So what we’re seeing is colleges dropping their academic standards, admitting more people they know will not graduate statistically from these universities because they come with a government check and they’re attracting them with things like study abroad programs, lazy rivers, rock climbing walls. There’s a huge building boom that’s been going on for the last 20 years. There’s been about 21 million square feet of new construction done by universities. And the vast majority of those new building and construction doesn’t qualify as classroom use, meaning it’s not being filled for the classroom. They’re building a bunch of nice stuff, nice facilities, trying to attract those 18-year-olds regardless of what they’re likely to study, whether they’re likely to stay in, whether they’re academically prepared for college-level work. None of those things are particularly important.
What’s important is they come with a big government check and then that kid either graduates or even doesn’t graduate with a big student loan on the back end. And everybody is unhappy with this proposition except the university because they got their money upfront. So all I’m saying in this Policy Focus is really we should look at the people who have benefited the most from this system, and that’s very clearly universities. They’ve had their products subsidized. They’ve allowed them to charge more and more and more above inflation every year because of these government student loans. And they’ve been making a lot of money. And you know what, they’ve created… They’ve made a lot of money off of this student debt problem that they’ve had a huge hand in creating, and now it’s like the left says it’s time for them to pay their fair share.
Beverly Hallberg:
And so what would that tax rate be? How would you even divvy up the tax structure?
Inez Stepman:
So there’s a variety of ways to do this policy-wise. I think what’s important is that at the 10,000-foot level is to say, okay, no, whose bill is this? And once we determine that it’s the university’s bills, I think there’s a large number of ways we could do this. So one of the ways I propose here is to raise the tax on endowments. There’s about 675 billion dollars in endowments. I mean, universities like Harvard and Yale are essentially hedge funds with a school attached. Harvard and Yale’s endowments are, I think in the top 10 hedge funds. They would be in the top 10 hedge funds in the United States. They’re not getting taxed like hedge funds.
So there’s potentially to raise the tax at the same capital gains tax, the same taxes that other people trading in this many billions of stocks in the stock market get taxed like any other person or any other organization or entity. So that’s one part of the proposal. Universities are also huge landlords. So in California, the UC system is the largest landlord in the state. That’s not unusual in terms of large networks of universities and all that land is exempt almost always from property taxes. So states, if they wanted to set up their own forgiveness pools, they could be taxing the property that universities have acquired, especially over the last 30 or 40 years.
So there’s a lot of different ways, and I lay out a few more proposals. I think there are a lot of different ways to skin this cat as long as you accept the idea that the cat that ought to be skinned in this entire mess is the universities themselves.
Beverly Hallberg:
And not the taxpayer. Just final question on that, just curious if any states have looked at this, any legislators, any lawmakers nationally? Is there any movement on any type of bill to tax universities?
Inez Stepman:
So in the Tax Cuts and Jobs Act in 2017, there was a very small tax, 1.4% sort of slipped under the radar in there. So I think we can build on that. There’ve also been other kinds of proposals. There’s been a few ideas thrown out in Congress, has not really taken fire yet. I’m hoping that this proposal and that others like it will encourage legislators to look at this and look at it differently because what legislators have been sort of on the right Republican legislators have really been doing is they’ve been giving an answer one of two answers. One, the first answer was too bad, you signed on the dotted line. And I really think just leaving aside all the policy, that’s just a very politically bad way of looking at the problem. I think it’s going to be perennially an issue.
This debt is going to keep compounding and compounding. It’s going to hold young people back in life. We’re going to have successive generations. We already have a generation and a half coming into the workforce with this kind of debt. It’s a problem that’s not going to get better on its own and the cost is going to continue to skyrocket. So I think it’s not a very long-sided or far-sighted way of looking at the problem in my view. The other thing that has been proposed has been basically no child left behind for universities. If you remember all the way back, there was a Bush-era program for K-12, which is that the government basically is going to duplicate the U.S. World News Report and it’s going to give a bunch of information and rank universities on the basis of how much money their graduates owe after graduation. We’re going to put this all into a big formula and give it to the administrative state.
I don’t think that that’s going to be particularly useful or functional. We already have the U.S. World News Report. The problem isn’t the value proposition of any individual particular university. But again, that sort of Hobson’s choice that we’re offering to every high school graduate, which is we’ve made both tracks harder because of policy choices because we decided to extend these massive government loans, not to mention all of the billions of dollars in grants that universities get. So we have just heavily, heavily, both policy-wise and culturally invested in this one track through university. And I don’t think that that’s been good for society. It’s certainly laughable to my mind to imagine that universities are graduating wiser graduates into the body politic than they were 30 years ago. And then it’s just not the same financial proposition that it used to be.
So I think rolling all of that and the actual reality of that picture into the way that we think about it as conservatives, I think we have a really, really important opportunity and a window of opportunity here as the Biden administration tries these various throwing spaghetti at the wall, legally dubious sort of solutions to actually take the lead and propose this, something that is just, that is fair that I think puts the bill in the right place, but also recognizes the burden and the unfair burden that has been placed on a lot of students in terms of student debt. So I think this is sort of a win-win proposition unless you’re a university.
Beverly Hallberg:
Yeah. Well, it’s an important one because I do think people are taking a look at college and university in a new way. Is it actually worth it? Is the debt worth it? And as you said, as the Biden administration is trying all different ways to try to forgive student loan debt, I think it’s a good time to have the conversation. So the Policy Focus is called Taxing Universities. You can find it on iwf.org. Inez Stepman, thank you so much for your work on this and joining us today.
Inez Stepman:
Thanks so much, Beverly.
Beverly Hallberg:
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