The Trump administration’s proposed 2021 budget includes any number of ideas that have little chance of passing Congress, but that doesn't mean they are without merit. One such proposal would end the forgiveness of federal student loans for those who choose “public service employment.” It would roll back the program that allows those who work for the government or any nonprofit group to wipe out their student loan debt once they’ve made 10 years of payments.
It's an attractive idea, on the surface. It’s hard to oppose public service, and almost everyone seems to want to forgive student debt these days. But just as federal subsidy programs can misallocate capital, harming the economy, so can public service debt forgiveness misallocate human capital: the talents of the public. Nor is it obvious that employment by the government or a 501(c)(3) is a higher and better calling than private enterprise, nor that compelling people to remain in a particular type of job in order to reduce their debt really serves the public.
Let’s imagine that a new college graduate faced an employment choice in 2007, when the public service program began. The choice was between work for the Bill and Melinda Gates Foundation (definitely a charitable nonprofit organization) and Apple, as it was putting the final touches on the rollout of the iPhone. There is little doubt that, especially compared to many foundations, the Gates Foundation has done much to improve education and global health. But the public benefits of the iPhone, to those who develop and use its apps, are virtually incalculable.
Indeed, the implicit idea that “public service” by definition provides a greater benefit than private employment or entrepreneurship feeds the false narrative that business owners and managers serve only themselves.
This is not to say that we should not want to encourage talented people to work for the government. Indeed, during nearly two decades at the Harvard Kennedy School of Government, I grew frustrated by the fact that fewer graduates were actually choosing to work for the school’s nominal purpose. What Tyler Cowen is calling the “high capacity state,” coupled with limited government, desperately needs public health professionals at the Centers for Disease Control and Prevention, software experts at the FBI, and history majors in the foreign service.
But we should not be averse to such persons serving less than 10 years in such roles — and feeling compelled to remain in them as their life situations change. Nor should we want to encourage only new college graduates to respond to such callings. Similarly, those of us who believe in a robust civil society to shape and reinforce healthy norms and serve those in need should not want those working for such groups to feel they are indentured servants.
What’s more, although all nonprofit groups may be legally the same, once granted tax-exempt status, they differ in other respects. It is one thing to serve meals at the Salvation Army and quite another to work as a lobbyist for the National Community Reinvestment Coalition, which focuses on mandating bank investments through the Community Reinvestment Act — just to pick one personal bête noire among a universe of de facto partisan nonprofit organizations.
This all may seem like small potatoes. To date, according to the Department of Education, only 1,139 loan recipients have had their debt slates wiped clean (a total of $74 million forgiven). But some 109,000 borrowers have applied for forgiveness — with 70% denied because of incomplete applications. The scale of potential loan forgiveness is large: The Department of Education reports that the value of loans it might potentially approve as $107 billion, based only on applications already received. This is a program that only began in 2007, however, and should not be expected to have crested by this point.
Student loan debt is a vexing problem, complicated by the vicious cycle linking tuition aid and the rising price of higher education. But there are constructive ways to address it, such as the “income-share agreement” pioneered by former Indiana Gov. Mitch Daniels, now president of Purdue University, and spelled out in a thoughtful Manhattan Institute paper by former Federal Deposit Insurance Corporation Chairwoman Sheila Bair and co-author Preston Cooper.
One approach we should not take: standing idly by as college costs continue to skyrocket, with de facto federal support, and help students pay the freight by telling them where to work.
This piece originally appeared at the Washington Examiner
______________________
Howard Husock is a senior fellow at the Manhattan Institute, where he directs the Tocqueville Project. He is the author of the new book, Who Killed Civil Society?
This piece originally appeared in Washington Examiner