PROF GIORDANO: Biden’s SAVE Plan is another ‘too big to fail’ bailout
President Biden's student loan plan, SAVE, exposes an undeniable truth that few are willing to acknowledge: that 4-year colleges no longer represent a sound investment.
Nicholas Giordano is a professor of Political Science, the host of The P.A.S. Report Podcast, and a fellow at Campus Reform’s Higher Education Fellowship. With 2 decades of teaching experience and over a decade of experience in the emergency management/homeland security arena, Professor Giordano is regularly called on to speak about issues related to government, politics, and international relations.
Higher education, which is supposed to be the pathway to success, delivers crushing debt on top of limited job opportunities and earning potential. With student loan payments set to resume in October, the Biden administration’s Saving on a Valuable Education (SAVE) Plan aims to address the student debt crisis.
Make no mistake. The SAVE Plan is a bailout to higher education institutions and unnecessarily places the debt burden on hard-working taxpayers as opposed to where it belongs: the student and the institution.
President Biden claims that his plan will assist over one million student loan borrowers, and up to 800,000 will ultimately have their student loans forgiven. The cost? The U.S. Department of Education projects that the SAVE plan will cost taxpayers up to $361 billion over ten years. If the administration’s numbers are accurate, the SAVE Plan exposes an undeniable truth that few are willing to acknowledge: that 4-year colleges no longer represent a sound investment.
Under the SAVE Plan, borrowers making $32,800 or less as an individual, or $67,500 for a family of four, will have a $0 monthly payment. Borrowers with original principal balances of $12,000 or less will have their student loans forgiven after making ten years of payments. For every $1,000 borrowed above the $12,000 threshold, student loan borrowers have to make payments for an additional year, up to 20 or 25 years, before they are eligible for forgiveness.
While the SAVE plan may provide some relief to struggling borrowers, the fact remains that no one attends college to earn $32,800 or less per year. If after a few years – NOT DECADES – a student loan borrower is still unable to earn sufficient income to meet their loan payment obligations, it should serve as an indictment on the entire higher education system.
By contrast, the cost of attending a two-year community college is 90% less than a four-year private college and 86% less than a four-year public college. The median annual earnings of those with an associate degree is $43,000 with the potential of earning more than $60,000 annually. The cost of attending a trade school typically spans from around $3,000 to $15,000, while the median annual earnings hover at approximately $60,000.
For far too long, our higher education institutions have evaded accountability for high tuition costs, ineffective degree programs, and their failure to adequately prepare students for successful careers.
Too Big to Fail
Just as the government’s intervention in the 2007/2008 mortgage meltdown and banking crisis fortified and bolstered the very institutions it sought to rescue, the Biden administration’s SAVE Plan will have a similar outcome in higher education. By shifting the financial burden onto taxpayers, this plan effectively bails out institutions, enabling them to sidestep accountability for skyrocketing tuition fees and substandard educational outcomes.
Even worse, the SAVE Plan may incentivize current and future student loan borrowers to intentionally delay and miss payments, knowing that these non-payments will count towards some type of debt forgiveness. This will further strain an already broken system.
To end the student debt crisis and tackle the real problem – the high cost of college tuition – we must do three things. First, we must dispel the notion that a 4-year college education is the only pathway to success.
Second, colleges that engage in predatory lending practices, including offering degrees with no practical value and/or encouraging students to take out excessive loans, must face penalties ranging from financial repercussions to the potential loss of accreditation.
Finally, we should remove the federal government from the student loan business and return it to a credit-worthy model. This will force institutions to reduce tuition costs to reasonable levels if they want to effectively compete for students in the classroom.
The SAVE Plan does not address the root issues that created and contributed to the growing student debt crisis. If we want to alleviate debt burdens going forward, we must tackle the soaring costs of higher education instead of bailing out other people’s loans.
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