It’s a dirty trick that the federal government has played on young Americans, luring them into about a trillion dollars of student debt. This readily available money has insulated students from the cost of college, sparing colleges from market pressures that might have restrained cost increases that have long outpaced inflation.
Worse have been proposals to shift the costs of that debt repayment from students who borrowed too heavily to the taxpayer. Sen. Elizabeth Warren pushed one last spring, for example. It would have permitted borrowers to refinance students loans into new government loans at lower interest rates. I voted against it because it was a bad idea. As the Wall Street Journal pointed out:
“The Congressional Budget Office says the Warren bill would increase federal spending by $58 billion over a decade. But as CBO has repeatedly warned, its official scores by law must underrate the risk of defaults in such federal loan programs, so who knows what this latest election-year pander to young voters will ultimately cost.”
It is especially frustrating to see the government’s good intentions not simply lure students into imprudence but then to shift the cost of that imprudence to taxpayers, many of whom did not themselves benefit from having a college education. Reports that elite law schools, for example, have been appealing to prospective students by telling them government debt-forgiveness programs will cover the bill are especially galling.
I have said as much before, including to a reporter from Wisconsin Public Radio after I met with constituents near Sun Prairie last May. I was a little surprised when the Milwaukee Journal Sentinel’s “fact-checking” operation, PolitiFact, demanded proof that some students from affluent backgrounds could take advantage of loans in which some of the costs were shifted later to taxpayers. The evidence is pretty plain.
Things became clearer, however, after the newspaper finally passed judgment this week, claiming my statement was “mostly false.” The Journal Sentinel was playing a game. It more or less ignored the evidence and reinterpreted my statement to get the verdict it must have wanted.
But don’t take my word for it. Fact-check the newspaper by looking at the evidence yourself. First, consider what I told Wisconsin Public Radio:
“I've got a problem where you've got kids coming from an affluent background, taking advantage of all these student loan programs and grants for higher education, and who's paying for that? I mean, in many cases, working class families – the middle class who aren't going to college, who aren’t sending their kids or they didn’t go to college themselves, and yet their tax money’s being used to fund the college educations of more affluent individuals.”
Is it true that at least some students from affluent backgrounds can access student loans that could be forgiven? The evidence says yes.
Now, I did not say that all students who use student loans are from affluent backgrounds, or even most. I did not say that all or even most students from affluent backgrounds use student loans. What I said was that there were cases of this happening – so, like most Wisconsinites would be, I am concerned about the idea of federal taxpayers subsidizing debt forgiveness.
First, the authoritative Trends in Student Aid report from the College Board shows that students from families with incomes of $120,000 a year or more had accumulated student debt. Does this mean that $120,000 a year defines affluence? I don’t know, but I do know that the top category in College Board’s figures, families making $120,000 a year or more, includes those who may be called “affluent.” The median household income in Wisconsin is about half that, and a household earning $120,000 would earn more than about 85% of all households.
Second, of the “at least 30” federal loan forgiveness and loan repayment programs now operating, most do not include the economic status of a borrower’s family background as an eligibility criterion. Many depend simply on whether a borrower works for a particular government employer, works in a particular job or has repaid some of a loan for a certain time. So students from affluent backgrounds very much can take advantage of loan forgiveness programs. The Congressional Research Service summarized these programs in a recent report.
Sen. Warren’s bill did not limit the deal to federal direct loans that depend on family need – it specifically included Federal Direct Unsubsidized Stafford Loans, for example, and while it included income requirements, those only concern the borrower who is now repaying, not the borrower’s family background. A kid from a well-to-do family who over-borrowed would still have gotten Sen. Warren’s deal.
Third, the Wall Street Journal analyzed data from the Federal Reserve Bank of New York in 2012 to report that “households with annual incomes of $94,535 to $205,335 saw the biggest jump in the percentage with student-loan debt from 2007 to 2010. . . . Borrowing has also increased for lower-income families, but by a smaller amount. Families with lower incomes tend to send their children to lower-cost schools.” So, again, students from higher-income backgrounds are taking out student loans.
Finally, as I pointed out before, federal loan forgiveness programs have drawn public notice recently as being used by some prestigious law schools as a way of making degrees free or very low cost to would-be students. The left-leaning Politico reported on this last summer, and the Wall Street Journal did so this spring. The affluence of students’ backgrounds are not a factor in their eligibility for this taxpayer-supported deal.
It’s important to understand just what the federal government is giving. The Journal Sentinel focused on the subsidy the government provides on some student loans — it pays interest while the borrower is in school — and on Pell Grants to needy students, as if these were what worried me. This misses the fact that the taxpayer already is further subsidizing borrowers of all backgrounds by forgiving some student debts. Other proposals, including Sen. Warren’s, only increase this. Forgiving a borrower the debt he owes the government is a grant of federal money.
But the question isn’t just whether students from affluent backgrounds have access to student loans that can be forgiven. Is it also true that taxpayers without college degrees pay federal taxes may help subsidize federal loan forgiveness?
Again, the evidence says yes. The Journal Sentinel even concedes this, writing, “In some cases, affluent people get a subsidized loan and based on repayment programs, some small portion hits the general fund.”
It then hastens to add, “But then it’s picked (up) by all taxpayers not simply the group Johnson mentioned — middle class taxpayers with no ties to college.” OK, but I never said otherwise. I did not say that that most of the cost of loan forgiveness is falling on families without college graduates.
But as a manufacturer, I employed lots of Wisconsinites who do not have college degrees. They earned a good living without having piled up excessive student debt. I do not think it is fair that the government should take money they earned by hard work to subsidize people who have the added advantage of a costly college degree. It doesn’t make the situation any less unfair to tell them that they’re only paying part of the bill.
Let’s look at that evidence that taxpayers without college degrees help subsidize federal loan forgiveness.
First, the Congressional Research Service report I mentioned earlier describes the funding for existing federal loan forgiveness programs:
“In loan repayment programs, the direct costs of borrower benefits are not incorporated into the subsidy rates of the federal credit programs through which the federal student loans were made, but rather are funded through the appropriation of funds for the fiscal year during which the loan repayment benefits are made available. … Funding may be provided through either discretionary or mandatory appropriations.”
That is, the programs are funded the way general government spending is. The costs are considerable: for some programs, on the order of billions of dollars over a decade’s time. But they are funded by federal taxes generally.
The Journal Sentinel points out that borrowers who pay back loans are covering the cost, at least in theory. But what the newspaper seems to forget is that back in May, when I gave that answer, the discussion was about programs to forgive student debt — to allow borrowers to pay back less than they owe. The difference would come from taxpayers.
Sen. Warren’s bill, for example, proposed a so-called “Buffett tax,” or a minimum effective rate on incomes over $1 million. The Congressional Budget Office estimated that this “Buffett tax” would not bring in enough money to cover the Warren bill’s costs during the period in which the bill would do most of its spending — only over the long term. But the “Buffett tax” has repeatedly been proposed as a funding source for a series of other Democrat proposals. It’s reasonable to suppose that rather than waiting for the tax to bring in enough to cover past loan forgiveness, Congress will be tempted to use the future revenue for other purposes. In the meantime, the costs of the Warren bill’s forgiveness will already have been borne by federal taxpayers generally — including people of all incomes and educational backgrounds.
Second, your liability for federal income taxes does not depend on whether you have a college degree. People without college degrees are liable to pay federal taxes just as are people with them.
Do people without college degrees earn enough money to pay federal taxes? Yes. Leave aside people who go to affordable technical education. The Bureau of Labor Statistics reports that the median weekly earnings of workers with no more than a high school diploma were $651, or $33,852 per year.
So, look at the IRS’ Statistics of Income tables. Table 1.1 for the latest year available tells us that there were about 67 million tax returns reporting less than $30,000 in adjusted gross income, about 23.4 million of which reported a positive income tax liability after credits. These returns reported a total of about $21.3 billion in income tax owed, or about $908 per return.
Again, these figures are based on income, not whether a taxpayer has been to college or not. The under-$30,000 category includes college graduates making low pay, just as higher income levels include high school graduates with well-compensated talents.
But the figures do show that someone earning the median pay for high-school-only graduates would be earning more than a group of people who, as a group, paid $21.3 billion in income tax. It is reasonable to conclude that some taxpayers without college degrees are paying some share of the federal tax burden, which in turn subsidizes loan forgiveness programs.
I realize I offered a lot of reading here, but it’s important for Wisconsinites to see what the Journal Sentinel was given.
The paper concluded that my statement was “mostly false” because it “overstates the problem” — because only some students from affluent backgrounds get taxpayer subsidized loans or loan forgiveness, and only some of the burden falls on taxpayers without degrees.
The paper missed the point: I am bothered that the situation happens at all. I didn’t say this was common — I said it was unfair.
My judgment of this PolitiFact check: It was petty and it was wrong. My statement was true and fully supported by the facts presented here and provided to the Journal Sentinel.