Could the GOP Aim for Winning Student Loan Play?

The student loan crisis in America has reached staggering proportions, with current and former college students owing a mind-boggling $1.75 trillion. Pennsylvania, arguably the single most important swing state in the 2024 election, finds itself at the epicenter of this financial nightmare. The Keystone State’s borrowers carry an average debt of $39,375, ranking third-highest in the nation. This albatross around the necks of young professionals isn’t just a personal burden; it’s a drag on the entire economy.

Democrats opted for blanket student loan forgiveness

The Democrats, to their credit, have attempted to address this issue. President Joe Biden made a bold move early in his term, proposing to cancel up to $400 billion in student loans. This would have benefited as many as 43 million Americans, with nearly half seeing their entire student debt wiped clean. But the Supreme Court, in a 6-3 decision, blocked this effort in Biden v. Nebraska, ruling that the administration had overstepped its authority.

Undeterred, the Biden administration pivoted to the SAVE plan, a more targeted and well-crafted approach using existing authority under the Higher Education Act. SAVE appeared to offer a lifeline to millions, with a more generous repayment formula and faster loan forgiveness for certain borrowers. But even this more modest effort faces an uncertain future, as a group of Republican-led states have successfully challenged the program in court.

These legal victories might feel good for conservatives opposed to “handouts,” but they don’t actually solve the underlying problem. More importantly, they don’t give voters anything tangible to rally behind – you can’t take something away from pragmatic Rust Belt voters without offering something in return. Pennsylvania Democrats understand this, which is why they’ve introduced legislation to exempt tuition reimbursement from the state income tax and ensure student loan forgiveness isn’t treated as taxable income. It’s a smart play that could save taxpayers thousands.

A modest proposal: go after the institutions themselves

The GOP, if it wants to win back some of the college-educated voters it’s been hemorrhaging, needs to offer something concrete. And there are conservative ways to do this that align with core Republican principles of fiscal responsibility and accountability. The answer lies not in blanket forgiveness, but in making the bloated institutions responsible for this crisis pay their fair share.

Consider the Smaug-sized money hoards that are the endowments of Pennsylvania’s largest universities. Penn State’s system endowment sits at a cool $4.5 billion, while the University of Pittsburgh boasts a $5.5 billion war chest. Yet, as PublicSource reported in April, very little of Pitt’s endowment is used to reduce its ever-rising costs – and much of its administrative staff is woefully underpaid as well. Instead, these largely-untaxed leviathans use their privileged status to gobble up vast swaths of valuable real estate in their host communities. Washington & Jefferson College, in my hometown of Washington, PA, has metastasized to consume much of that struggling downtown.

Why are we giving a free pass to schools that are failing their students financially while enriching themselves? The first national-level Republican figure to channel the spirit of populist firebrand James Traficant and shout “Beam me up!” at these so-called nonprofits could galvanize thousands of undecided voters.

Tax institutions to relieve student loan debt

The GOP’s policy focus should be clear: tax or penalize these educational juggernauts to fund forgiveness and student loan relief. No more free rides for institutions that graduate perpetual debtors whose regrettable liabilities drag down the economy. If Penn, Pitt, Penn State, and others want to keep building palatial facilities while jacking up tuition and fueling rampant inflation, they should shoulder some of the financial burden they’ve created.

This isn’t just smart politics; it’s honest-to-goodness populism that speaks to the frustrations of young voters who feel duped by a system that promised success but delivered mountains of debt. It acknowledges that many students were sold a bill of goods about the necessity of college or the value of certain degrees. By making the institutions themselves pay out of their own coffers for relief, we can start to address the root causes of the crisis.

Ohio U.S. Rep. Dave Joyce has taken a step in the right direction with his Higher Education Accountability Tax (HEAT) Act. The bill aims to hold wealthy, elite universities accountable for their role in the student debt crisis by increasing taxes on their endowment profits. But it doesn’t go far enough in providing direct relief to struggling borrowers.

Details

Joyce’s proposal would raise the tax on annual private university endowment profits from 1.4% to 10%, expanding the number of schools subject to the tax. It would further increase the rate to 20% for institutions that raise their net price of attendance above the inflation rate. While this is a start, it fails to directly connect the punishment of bad actors with tangible benefits for indebted students.

A bolder Republican plan could take Joyce’s framework and supercharge it. Instead of the increased tax revenue disappearing into general funds, it could be earmarked specifically for debt relief programs. This would create a direct link between holding universities accountable and helping the students they’ve burdened with debt.

Imagine a system where the most egregious tuition-hikers and debt-creators faced escalating tax rates on their endowments, with every dollar raised going directly to forgive the loans of their struggling alumni. This approach would incentivize schools to keep costs down and focus on student outcomes, while providing real relief to those drowning in debt.

Such a policy would be a stark contrast to the current system, where schools face few consequences for churning out graduates ill-equipped for the job market. It would address the perverse incentives that have allowed universities to become financial powerhouses while their students struggle. As the National Bureau of Economic Research has found, colleges with larger endowments aren’t more likely to reduce tuition or increase financial aid. Instead, they become more selective, often enrolling fewer low-income students and students of color.

Republicans can bring accountability to institutions who have had none

By tying endowment taxes directly to student debt relief, Republicans could present themselves as the party truly looking out for the interests of young voters, diverse voters, and the precarious lower middle class. It’s a message that could resonate powerfully in a state like Pennsylvania, where the student debt burden is so acute.

This approach also aligns with broader conservative principles of accountability and fiscal responsibility. It doesn’t let borrowers completely off the hook, but it recognizes that the system itself is deeply flawed and in need of reform. By making the wealthiest institutions pay for the crisis they’ve helped create, Republicans can appeal to a sense of fairness that transcends partisan lines.

Court decisions aside, the student loan crisis isn’t going away, and neither is the political salience of this issue. Republicans have a golden opportunity to seize control the narrative. By making bloated university endowments pay for student debt relief, they can position themselves as the true champions of the next generation of American workers and entrepreneurs.

In a purple state like Pennsylvania, where every vote counts, this could be the one cash-on-the-barrelhead policy proposal that tips the scales. It’s time for the GOP to stop playing defense on student loans and go on the offensive against the real culprits: the free-rider universities that have profited from this crisis while leaving students and taxpayers holding the bag.

This article was originally published by RealClearPennsylvania and made available via RealClearWire.