We Can't Bail Out College Students

The 'Occupy' movement protesters all over the country are angry above all else. Their demands remain unclear, but calls for total (or partial) forgiveness of student loans seem to be a constant among those waiving angry signs. As most Occupy prostesters are either students or recent college graduates, this demand isn't surprising.

Whatever its merits (and I'd argue that the merits are slight) it's interesting to look at the demand for what it is: a request for more corporate welfare.

All colleges are corporate entities. (Harvard University is actually the oldest corporation in the United States.) Unlike most other entities treated as charities or considered government agencies, they derive most of their revenue from the sale of services--education and research--to paying customers. Only a handful of institutions, maybe 400 of the country's 4,000 or so colleges and universities, have endowments large enough that they don't have to watch the "bottom line" for every single project they undertake. Even some colleges with big endowments--Johns Hopkins comes to mind--are fixated on growing revenue and surplus (profit). Explicitly for-profit colleges are just a little more honest about their status as businesses.

If all student loans were to be forgiven, they would almost certainly have to be forgiven for those currently enrolled. Forgiveness, furthermore, would create a precedent that tuition for all colleges would be essentially free going forward. This would amount to an open-ended subsidy that would benefit many of America's largest corporations (the universities themselves) forever.

Tuition costs would almost certainly rise significantly in any case as the individuals consuming education services (few of whom pay "sticker price" right now) would have no reason to even look at the costs assessed.

For-profit institutions that don't have endowments would probably have the greatest benefits from current and future loan forgiveness. After all, they encourage nearly all students to take out loans and can lose future loan eligibility (and thus their business) if too many students default. Universal forgiveness, even one time, would make sure that they would qualify for federal loans forever.

Those protesting may not know it but the demand for loan forgiveness is, among other things, a demand for more corporate welfare.