Obama’s GM blueprint can protect taxpayers from Biden’s student loan ‘forgiveness’
In announcing his regressive, legally dubious student loan “forgiveness” scheme last month, President Biden offered a generous taxpayer-funded gift to college-goers. Along the way, he offered a massive bailout to colleges that have jacked up prices and then urged students to rack up debt.
After all, every penny of student borrowing winds up in college coffers, paying for bloated administration, campus perks, and the time faculty devote to publishing barely readable papers in barely-read academic journals. That means Biden’s $400 billion dollar ploy is a massive federal bailout, one that dwarfs, for instance, the controversial $30 billion federal bailout of General Motors in 2009.
If taxpayers are forced to pony up hundreds of billions to repay the funds that students regret having borrowed, they deserve some assurance that colleges won’t just do more of the same — setting the table for future bailouts. On that count, the Obama administration’s handling of the GM bailout can serve as a playbook for the current collegiate mess.
For starters, the Biden White House needs to set down a marker about what’s expected from colleges in return for taxpayer largesse.
When he moved to bailout General Motors and Chrysler during the Great Recession, President Obama pledged: “I would not put any more tax dollars on the line if it meant perpetuating the bad business decisions that had led these companies to seek help in the first place. I refused to let these companies become permanent wards of the state, kept afloat on an endless supply of taxpayer money.”
Biden needs to say something similar.
Back in 2009, Obama explained, “If GM and Chrysler and their stakeholders were willing to sacrifice for their companies’ survival and success; if they were willing to take the difficult, but necessary steps to restructure … then the United States government would stand behind them.”
In addressing the burdens that higher education has imposed on students and taxpayers, Biden must make a similar declaration. Unfortunately, colleges have indicated little interest in shared sacrifice. On the contrary, they’re spending more and building bigger than ever before. At no point during the student loan debate have colleges offered to slash prices, assist struggling student debtors, or even suggest that Biden’s announcement is cause for introspection.
When bailing out GM, Obama noted that when a big business “goes through a restructuring, it is extremely difficult to find common ground among all of the company’s stakeholders. But while the deal that has been worked out is tough, it is also fair.” Specifically, Obama pointed to provisions requiring the United Auto Workers to accept cuts to “compensation and retiree health care benefits” and GM shareholders “to give up the remaining value of their shares.”
That kind of shared sacrifice is needed now.
The burden Biden has asked taxpayers to shoulder should certainly be shared by the institutions and campus constituencies responsible for the problem, and safeguards should be adopted to ensure that the bailout doesn’t simply excuse bad habits or perpetuate out-of-control spending.
A good model is provided by the kinds of measures that accompanied the GM bailout. In particular, Biden ought to appoint a federal student loan collection czar who will be responsible for working with colleges to reimburse taxpayers for the costs of loan forgiveness. Among the first measures for the repayment czar to introduce:
- Colleges with an endowment of over $500 million should be required to work out a repayment plan with the U.S. Department of Education, with Washington reimbursed by the institution for all funds forgiven to its former students.
- College and university employees who earn over $200,000 should not be eligible for salary increases unless and until their institutions have made taxpayers whole (and no new positions should entail salaries above $200,000 until that time).
- All institutional outlays of over $250,000 should require the approval of a special magistrate until taxpayers have been made whole.
- The federal government should start negotiating permissible tuition and fee increases with any institution that receives federal funds, just as Medicare does with hospitals or the Defense Department with contractors.
- Institutions should be required to create a new board seat for a taxpayer watchdog (named by the repayment czar) to keep an eye on institutional outlays and operations.
- All institutions that participate in student lending should also be required to pay an annual “student loan repayment assessment” (based on their students’ total borrowing and repayment rates), to insure taxpayers against the possibility of future bailouts.
- Colleges and universities should be required to benchmark their benefits and administrative ranks against private sector best practices, with eligibility for future federal funds made contingent on appropriate cuts.
These safeguards should remain in place at any given college or university until it has fully reimbursed taxpayers for the costs of forgiveness of its former students, if the institution wishes to be eligible to participate in federal student lending or to receive other federal funds. If affected institutions find these safeguards unpalatable, that’s fine. They can either stop taking federal funds or simply make the taxpayers whole. It’s their choice.
President Biden worked closely with Obama during the GM bailout. He got a first-hand look to see what it looks like to protect taxpayers from private claimants when public funds are at stake. Here’s hoping that Biden proves as willing to stand up to campus bureaucrats and self-impressed professors as Obama was to the United Auto Workers and deep-pocketed investors.
Frederick M. Hess is director of education policy studies at the American Enterprise Institute.