NY Governor’s ‘Free’ Tuition Plan Will Make Student Loan Crisis Even Worse
Above Photo: Getty
New York Governor Andrew Cuomo unveiled a plan last week to provide for free tuition for people taking undergraduate courses at both the state universities (SUNY) and city universities (CUNY) in New York. He unveiled the proposal alongside Vermont Sen. Bernie Sanders, who hailed it as “revolutionary.”
Unfortunately, the plan isn’t revolutionary. In fact, it isn’t even good.
The plan, dubbed the “Exelsior Scholarship” is similar to schemes proposed by both Sanders and Hillary Clinton. It creates a new pot of money for the colleges to draw from, and apply it to tuition charges.
This in itself, would be a good thing for students if all else were equal, but the fact of the matter is that colleges are very good at using public funds such as this without passing the benefit on to students.
They can, and certainly will, raise the prices of their other billable items to make up for any decrease in tuition charges.
A good, recent example of this phenomenon occurred in 2009 when the Ensuring Continued Access to Student Loans Act of 2009 (ECASLA) increased aggregate and unsubsidized Stafford loan limits for undergraduate students.
Despite the fact that the country was in a serious recession, colleges across the nation began increasing their prices at record levels, and student loan borrowing accelerated at a rate never before seen in this nation.
— The Hill (@thehill) January 3, 2017
The schools will increase their dorm prices, their fees, and other areas where they can bill students. So ultimately this benefit accrues to the schools, not the students or their families. Where is the good in that?
Ten years ago, Cuomo and his predecessor in the Attorney General’s office, Eliot Spitzer, did excellent, groundbreaking work to expose widespread corruption among the schools and student loan companies in the wake of a seminal 60 Minutes piece on that topic.
The work Cuomo and Spitzer did led to the termination of financial aid administrators at colleges (including an Ivy League school) across the country, and also compelled Senator Ted Kennedy’s final piece of higher education, the Student Loan Sunshine Act.
Cuomo learned much about the predatory nature of the student loan system during this time.
He came to understand that all of the student loan system elements — including banks, guarantors, collection companies, colleges, and even the federal Department of Education — weren’t looking out for the students, but rather for their own institutional interests.
Towards the end of his investigation, he advised that the bankruptcy lawsfor student loans be revisited, since student loans were (and are) the only loan in this country to be stripped of standard bankruptcy protections.
When Cuomo did this heroic work, the nation owed about $500 billion in student loan debt. Today, we have added an astonishing $1 trillion to that figure. The colleges, meanwhile, have hoarded more cash — much of it from student loan revenues — than they know what to do with.
Bankruptcy rights, statutes of limitations, and other core consumer protections remain as absent as ever, however, and this is feeding the inflationary spiral in the price of college, and wrecking the lives of tens of millions of citizens.
Even the moderate curbs that were placed upon the lending industry by Kennedy’s Sunshine legislation have since been largely circumvented due to “safe harbor” language inserted into Regulation Z of the Truth-in-Lending Laws by the Federal Reserve Bank.
Another key difference in the student loan landscape since Cuomo’s AG days: The federal government, which essentially federalized the lending system in 2010, now profits about $50 billion per year from the system. It continues to make a profit on defaulted loans as before, however, and also continues to fight tooth and nail, behind the scenes, to keep bankruptcy protections gone from student loans.
To see Cuomo seize upon terrible policy proposals from the democratic presidential candidates — which evidently didn’t excite the voters — is disheartening.
To see Cuomo abandon his recommendations on bankruptcy, despite the fact that the need for the return of this bedrock, constitutional protection has grown massively since his days as Attorney General is disappointing.
To see him embrace an unimpressive policy intended for future undergraduate students — who for the most part cannot currently vote — and ignore the plight of the millions of New York residents currently saddled student loan debt — people who do vote — is baffling.
If Cuomo wishes to demonstrate true leadership on this issue to the public, and do something meaningful, a non-binding state resolution calling for the repeal of 11 USC 523(a)(8), the federal code the makes student loans uniquely vacant of bankruptcy protections, would be far more helpful than his current proposal.
The cities of Albany and Binghampton, New York, have already done this. He should take a cue from them, rather than Sanders and Clinton, who did not inspire the voters on this issue, and for good reason.
Alan Collinge is the founder of StudentLoanJustice.org and author of The Student Loan Scam: The Most Oppressive Debt in U.S. History and How We Can Fight Back.