Mark Cuban Wants to Cap Student Loans at $10,000

We expect much from people we see on television. And it’s worse when we perceive someone to be smart and talented, even if they’re speaking beyond their area of expertise.

We think someone who is a great community leader or someone who is a great business leader will make a great President of the United States. We see the similarities in roles and responsibilities and believe that intelligence and talent in one area leads to success in another. The same bias happens in ourselves. Why else would Donald Trump, a successful business person who doesn’t appear to have interpersonal communication skills based on his public statements and television appearances (I don’t know him personally) believe that he could be a successful politician?

And success that takes the form of money often empowers one’s belief that their ideas on any topic are worthy of attention. It’s easy to fall into this trap, because there are many people who idolize financial success and seek out these people for leadership. It’s a self-feeding cycle. The more we seek out “advice” from people who have lots of money, the more individuals feel they have something important to say, the more they put themselves out there, and the media are happy to oblige.

So when Mark Cuban, a billionaire who built and sold a major online property, diversified his wealth, owners a basketball team, participates in a popular prime-time television program, and can easily afford a four-year education at any of this country’s top universities, feels like speaking about a topic, the news media is right there to give him an even more prominent place from which to address the country than his own blog. One topic on which Cuban spoke recently is the practice of allowing taxpayers in the United States to subsidize the higher education of its citizens — student loans.

Student loans represent an important piece of a system that allows expanded access to education. Having a highly educated citizen base allows the United States to stay competitive. There are a number of initiatives in place to improve education in this country, and the media loves the soundbites that compare citizens of the United States with the progress of other countries in science, technology, engineering, and mathematics. The general impression is that the United States is failing to keep up with the progress of other countries, and that has inspired governmental action in all levels. It may not be successful, but at least it brings the issue of education to the fore, inspiring spirited discussions about how we can ensure we are providing the best education to as many of our citizens as possible.

But at the same time, an anti-education movement looks critically at the state of the university system, and identifies some problems. While access to education is a key factor in eliminating poverty and allowing breakthroughs into the middle class, those who start off in the middle class may not be getting all that they once were able to receive from a four-year college education. It certainly feels that way when so many college graduates are still out of work in this recovering economy. (Keep in mind today’s college graduates are still much better off economically than those who did not graduate college.) Another criticism points to the outliers who are able to build significant companies and effect the economy in powerful ways without completing a college education, but those are clearly not the norm.

Combine a tough job economy with growing student loans and you have a hot button issue that is perfect for attention from someone like Mark Cuban, who because of his success in business believes he might have some insight on public education and economic policy. His approach to higher education is to boil all the complicated variables into one concept: easy money.

As the government made it easier for all citizens to attend a college by backing student loans — loans that can’t be eliminated through bankruptcy like most other loans — it gave colleges guaranteed income. Because the money was coming in so freely, colleges could raise tuition without the increase affecting enrollment numbers. They could increase salaries for administrators (while adjunct faculty salaries remain an affront to education) without any damage to the budget.

Students take student loans so easily, but then have such a difficult time dealing with them once they need to start repayment. I went to school with student loans, and despite the initial orientation and exit interviews, my low salary in the nonprofit sector didn’t give me much of an opportunity to both pay off student loans and save for the future. I did neither, at least not well, for many years. And I had the benefit of at least being employed.

Cuban argues, perhaps correctly, that if students did not have such a financial burden upon graduation, they might be using their income to contribute to the economy (which probably means buying tickets to Maverick games or buying houses). If we could cap student loans to $10,000, the burden would be less, and with less free-flowing money, colleges would have to lower tuition to maintain enrollment.

None of this will work. It’s a very short-sighted approach. College graduates earn so much more than those without a degree, even in a difficult job economy. The best thing for the economy in the long term is to make sure as many people as possible, those who have the capacity to develop lucrative skills, get those college degrees. Reducing access to college will send this country’s competitive stance and overall level of production down, inside and outside of the United States.

Furthermore, in today’s economy, having students graduate with less debt is no guarantee they’ll still be generating income to spend boosting the economy. Low-income or no-income graduates can take advantage of deferment or income-based repayment plans. These program lower the immediate financial burden, so if there was to be any boost by limiting student loans to $10,000, we would already be seeing that today. The bigger problem is that graduates are still unemployed or underemployed (though less so than non-graduates).

Colleges are not going to lower tuition just because the government might not be backing as much in loans. If government loans were limited to $10,000, the most likely scenario is that private lenders take up the slack. And even if they didn’t, the best that could happen is that the rate of tuition increases slows down. That’s a good thing, but not nearly a strong enough reaction that would allow the same access to education, all other things being equal.

Germany took the opposite approach recently, announcing that all public colleges universities would eliminate tuition entirely for all domestic and international students. Almost 95 percent of colleges in Germany are public colleges and universities. In the 2000s, German states wrestled with the German federal government to win back control of education, and in doing so, the federal government needed something to do with the money it had been setting aside for education priorities while the German states began funding loans and grants to students.

Because of higher education’s positive effect on the economy, and because a higher-educated populace is culturally and socially important, universal access is a worthwhile goal, and that is why there is a tax system in the United States. There are certain things that are good for the country — and the world — as a whole. There’s no denying there needs to be improvement. Institutes of higher education are businesses, though, despite their charters. They need to operate on a budget. They need to generate profits to pay employees.

There should be institutional reform to make sure these businesses are running efficiently, and those reforms could open the opportunity for using available funds in ways that directly help students and increase the value of a college degree. Limiting government-backed student loans to $10,000 is the wrong approach.

Am I wrong? Is Mark Cuban right? Do you believe colleges (which are still businesses) will lower tuition if student loans were to be capped at $10,000?