Red Pen Edit: John Oliver on Student Loans

Pithy platitudes and jokes over good arguments

Last Week Tonight is a refreshing take on newsworthy items. Rather than offering daily, 24-hour news cycle analysis, Last Week Tonight airs once a week and does a deep dive into one issue each episode. The host, John Oliver, spends significant time explaining an issue and giving his take. Several weeks ago they covered student loans. This newsletter has covered student loans before, doing an in-depth look at the Biden student forgiveness proposal here and here. I’ve also discussed the Biden administration plan that is currently in force here. My take is that student loan forgiveness is generally misguided. People signed up for these loans, and it’s reasonable to expect that they at least pay back the principal. Crucially, offering loan forgiveness does nothing to address the underlying problem: the high cost of attending college in the United States.

The full video above is informative and entertaining, and key points are highlighted and commented on below.

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Woman 1: I started with $80,000. I have been paying for 10 years. The grand total is I have paid $120,000 and I still owe 76 [thousand]. How the fuck is this possible!

John Oliver: That is the appropriate response. No one should be working for 10 years only to end up worse off than when they started.

Well, no. That’s not how loans work.

I don’t know the exact details of this woman’s loan, such as how many years she didn’t make any payments, but it appears interest was accruing while she was in school. If she let interest accrue for five years and didn’t make any payments, the balance would be $113,597.71. At this point, slightly over $13,000 per year is being added to her balance from interest alone. Therefore, if she paid $12,000 per year toward her loan after that five-year gap, then yes, her balance will not be going down. You have to pay more than the interest on a debt if you want the debt to go away! If you owe $10,000 to a credit card company and only make the minimum payment every month, then yes, that debt will never go away. Ever. Student loans work the same way, as does every other type.

This is the kind of argument that makes me doubt the entire loan forgiveness movement.

Mike Huckabee: Why stop it at student loans? Why not pay off people's car loans, their home loans, their loans to get a tattoo?

…

John Oliver: Wow, what a bunch of weird made up bullshit.

I used to really like John Oliver, but this type of dismissive arguing is antithetical to healthy debate. Huckabee is being somewhat flippant, but it’s a valid question. As I’ve argued previously, most of the arguments for forgiving student debt could also be applied to the mortgage debt. By not engaging with the argument, it makes me think Huckabee is making a valid point.

John Oliver: The only thing [legislatures] definitely made easier was ensuring that anyone going to college could now access an absolutely massive line of credit and theoretically that would have been manageable so long as the price of college didn't get out of hand.

Exactly. But without any constraints on prices colleges charge accompanying student loans, it was guaranteed the price of college would get out of hand.

John Oliver: It's now at the point where the average net cost of attendance for instate students of public schools, that is after subtracting financial aid and grants and adding in the cost for things like housing, food and, books is around $20,000 per year.

$20,000 a year to live and get an education actually sounds pretty reasonable to me.

John Oliver: While a lot of factors contributed to that rise one key one was a dynamic that accelerated after the 2008 financial crisis when states began slashing funding for public colleges and universities where the vast majority of US students go.

This is an infuriating trend that almost every US state has participated in. What is most galling is that many state legislators attended in-state colleges at a time when it was massively subsidized by that state government. Now that they control the purse strings, they have decided to stop those subsidies and spend government money in other areas. It’s one of the worst forms of drawbridging.

John Oliver: Colleges now compete to lure those students in with expensive amenities, from state-of-the-art student centers to rock climbing walls.

I understand why people are upset students have access to suite-style living and amenities that would be more suitable to a country club than a university. However, revealed preference dominates stated preference.

Imagine a state that said, “To hell with this! We are going to trim down our flagship institution. No more health clubs and sushi. From now on, we are devoting all our money to bringing in the best faculty possible. To developing curriculums that will ensure students are learning their discipline and in a position to be competitive for whatever career they choose. Our students will have opportunities to do research with top minds, intern at the best companies, and be at the forefront of knowledge. But they will live in rooms that resemble monastic cells, be served mystery meat in the cafeteria, and have a weight room with equipment that dates from the Reagan administration.”

No one would attend.

Woman 2: To have a drink of alcohol you have to be 21 to take out $100,000 worth of debt you can be 18.

I think that says more about a drinking age that is too high than a loan age that is too low.

Woman 2: So my total due for this month, $707.74. What will be applied to the principal $64.54. So the principal is the total amount of loan, like actual money that I actually took out. What will be going to the interest? $643.20. So my principal isn't going down my debt isn't going down I'm literally just paying the interest.

John Oliver: That is ridiculous.

Counter: No, it isn’t. Again, that is how loans work. In fact, in any other setting allowing someone to accrue $643.20 worth of interest and making them pay only $707.74 would be considered generous. The alternative would be to put a student debtor on a fixed-term loan, where they not only have to pay $643.20 in interest each month but also hundreds to reduce the principal. This would, over time, reduce the size of the loan and it would eventually get paid off. This woman has that option but has chosen not to use it.

John Oliver: …when it comes to debt forgiveness which is a little weird because rich kids tend not to have student debt because their parents tend to pay for their college, just like they tend to pay for lawyers to make that thing with the car and the cyclist go away.

That is a great line.

More importantly, however, it’s incredibly misleading. Rich kids perhaps don’t have much student debt, depending on how you define rich. However, most student debt is in fact held by people with higher than average incomes. More importantly, those with higher projected future earnings absolutely have a disproportionate amount of student debt. To say “rich kids” don’t have debt is unfalsifiable and is covering up the larger truth: student debt is mostly held by the relatively well-off.

John Oliver: Those most burdened by debt often have relatively small amounts of loans.

This makes no sense.

John Oliver: That guy was talking about putting off having kids, he's not in debt because he studied theater. He owes $30,000 from going to a State University to study accounting.

Exactly my point. The average starting salary for a first year accountant is $62,000. This is not that type of person who should be getting debt forgiveness. I don’t know anything about this specific individual, but the average person with an accounting degree is going to earn millions over their lifetime. A $30,000 debt is not crushing.

John Oliver: It gets even worse because increasingly it's not just young people taking on student loans, that is thanks to yet another Federal program called Parent PLUS which allows parents to take out a student loan on their child's behalf. But these loans are even riskier. They have effectively no income requirements and no limit on borrowing and that means there are increasing numbers of retirees saddled with student debt on behalf of their kids.

A few moments ago it was a big deal that an 18 year old is too young to understand such a loan. I’m sympathetic to that argument, but it absolutely does not extend to parents of college students. They know what they are signing up for. If the programs were to change and have income requirements then the complaint would be that the poor are being locked out of higher education.

Professor: if I were to go and lose all my money uh at the gambling casino I can declare bankruptcy. If I were to you know be a criminal and do some horrible thing I can declare bankruptcy. Students are not allowed to declare bankruptcy.

Where is this “gambling casino” that will let me gamble on credit? Because I’ve never been to one. It is also not true that criminal punishments are dischargeable through bankruptcy. This guy is incorrect on both counts, which is unfortunate because student loans do come with incredibly strict forgiveness terms. It would be better to compare student debt to mortgage or consumer debt, which are much easier to discharge through bankruptcy. Also, this professor is not an instructor of finance or economics or anything like that. He writes about culture for the New Yorker! That doesn’t make him wrong, but does make him a curious source.

John Oliver: There is one more player that we should mention here and that is student loan services. You might know them by names like these and if you know who these companies are you probably fucking hate them. Services like these manage loans on the government's behalf, and in theory they're supposed to help you navigate the system, but in practice they often manage to make things much worse. A report found some companies have billed people for the wrong amount given them bad information and subjected them to incredibly long hold times on the phone

This is a much better argument. Student loan servicers are widely held to be terrible. If they are providing wrong information or not abiding by the terms of the loans, then these companies should be sued and shut down. Both the debtor and the lender should have to abide by the terms of the loan. That means people need to pay the money back that they owe, and student loan servicers need to charge debtors the right amount.

I wish less attention was paid to those who don’t want to pay back the money they willingly borrowed, and more to companies that are not treating debtors fairly or trying to profit at a debtor's expense.

Woman 3: The [loan servicer] looked through my account she say you may have an issue that we know is an issue where the auto-debit takes the payment but one penny short of what is actually due, so it doesn't count. I submitted my case for review and it sat in review for 3 years and in the interim I was paying because you're like okay well they're reviewing it they're doing something but it the review never… 3 years later it was still under review.

Yes, this is maddening. Seems like a perfect thing for the Consumer Financial Protection Bureau to look into!

John Oliver: a similar thing happened with income-driven repayment plans which provided that if your income was below a certain level and you made 20 to 25 years worth of payments your loan would eventually be forgiven, which sounds good but again the program's mechanics were very complicated and services fucked things up. Government reviews found that some steered borrowers into something called forbearance instead, which basically hits paws on your loan but allows interest to keep accumulating.

This sounds like predatory lending. Again, this is what people who want to restructure student debt should be focusing on.

Woman 4: We've been, you know told, working class people, that as long as you get an education then you will have job prospects. You'll be able to take care of your family, you'll be able to have a future. I really used to blame myself a lot and I used to feel a lot of shame and then I started to look at the policies and I'm like wait a second is it personal responsibility or is it really bad policy and I realize it's bad policy straight up.

I hope nobody who is successful in this world thinks that getting an education means guaranteed financial security. Going to college is a necessary step for many careers, but there are many individuals who are very successful who have never stepped foot on a college campus and many individuals who have multiple college degrees who have low incomes. As a professor, I would never tell a prospective student that getting a college degree comes with any guarantee. It puts you in a good position to be successful, and opens up a lot of job prospects, but that’s all. You also need hard work and acumen to have a successful career.

Congressman Roger Williams: I'm a small business owner back in Texas and in my world if you borrow the money you pay the money back pure and simple.

John Oliver: That's an interesting point from a man whose eyebrows seem surprised to be on his actual face. But on one level I do get that argument, it's just it's a little hard to take coming from him, as at the start of the pandemic his small business received a $1.4 million PPP loan and guess what he didn't then do - pay it back.

First, I wish someone would tell me the rules on when it’s ok to make fun of someone’s appearance and when it’s not. It’s not that I disagree with them, I just have no idea what they are. Second, I agree, the PPP loans should not have been as large or have been forgiven as they were. There’s a host of reasons why the comparison between PPP and student loans is flawed, not least of all that PPP loans were issued when the government forced much of the economy to close. Regardless, having one unfair loan forgiveness program does not justify a second.

John Oliver: The government spends money all all the time on all sorts of things to benefit select individuals because we think there is a net societal benefit from forgiving loans to small businesses to subsidizing corn farmers to giving homeowners massive tax breaks to building stadiums. I don't love spending money on all those things but if you do it feels pretty weird to suddenly draw a hard line at student debt and what we wait for Congress to pass comprehensive debt relief.

I agree 100%. Get rid of ALL THOSE THINGS. They are all bad government programs. At best they create inefficiencies, and at worst they help wealthy Americans and companies at the expense of the poor.

That said, the difference is that agricultural subsidies, homeownership tax breaks, and government-built stadiums all have the terms set first. Corn farmers know the subsidies they will get when they plant corn. Homeowners know they can deduct mortgage interest when they buy a home. Sports teams relocate to cities because the city is paying for the stadium. People don’t like student loan forgiveness because it amounts to changing the rules of the game halfway through. It’s frankly dishonest to not acknowledge this reality.

John Oliver: I'm not saying college is the right choice for everyone but it should be a choice. It can unlock a lot of opportunities and be a net benefit to all of us. So it should be affordable for everyone regardless of what you study.

This is the ultimate meaningless platitude. What does it mean that college “can be” a net benefit to all of us? How do you define affordable? Does Oliver really think everyone should be able to stay in college their entire life on the government’s dime, without having to put any money in themselves? Come on.

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At the end of the day, there are two big points worth reiterating. First, there is a big difference between changing the rules of existing student debt and fixing flaws in how the current rules are administered. I think focusing on the latter would find a lot more support. Second, none of this fixes the underlying problem: the cost of college is very high. None of this student debt relief even addresses this. Instead, it amounts to changing the rules of the game once it’s already started. That isn’t necessarily a bad thing, but the burden of proof is on those who want to do it.