Congratulations on Your Recent Education Investment

You are the proud new owner of student debt owed to the disgraced, departed Art Institutes.

When The Art Institutes collapsed last September, closing with a week’s notice, I expected never to hear news about them again. But in May, the Biden administration made a big announcement:

The Biden-Harris Administration today announced the approval of more than $6.1 billion in automatic student loan relief to nearly 317,000 borrowers who enrolled at any Art Institute campus on or after Jan. 1, 2004, through Oct. 16, 2017. The U.S. Department of Education (Department) found that The Art Institutes and its parent company, Education Management Corporation (EDMC), made pervasive and substantial misrepresentations to prospective students about postgraduation employment rates, salaries, and career services during that time.

EDMC sold the last of its Art Institute campuses in 2017, so the forgiveness stops there. EDMC was deemed culpable if not liable for a list of shenanigans that surprises none of us who worked there:

The Art Institutes advertised that more than 80 percent of graduates obtained employment related their fields of study within six months of graduation, but the school's own records demonstrate that it inflated advertised employment rates…. The true average in-field employment rate was lower than 57 percent because the school also falsified some internal data to make graduates appear to be working in-field when they were not.

The advertisements promoting The Art Institutes’ falsified employment rates also displayed inaccurate average salaries that graduates earned from their in-field positions based on the same flawed data as the employment rates. Testimony from former high-raking school officials supported the findings that school personnel made up graduate earnings and annualized the actual or estimated incomes of graduates working in temporary positions….

The Art Institutes also represented to prospective students that it had partnerships with employers and offered ongoing postgraduation career services. However, the evidence showed that The Art Institutes exaggerated its relationships with employers. In fact, the school had a negative reputation, so companies generally did not want to hire its graduates. Former employees and borrowers also described that graduates did not have access to ongoing career services after leaving school.

Who is liable? You.

Federal loan forgiveness does not cause debt to vanish into the spirit realm. The federal government funds student loan programs using taxpayer dollars. When loans are forgiven, the government absorbs the cost of the unpaid debt. The money came from the Treasury, but will not be repaid to the Treasury. The difference between expenditure and revenue widens the deficit by definition. Additional or alternative revenue could close it, but spending so exceeds revenue in modern federal budgets that the problem only worsens.

The Treasury services that deficit by selling debt—bills, bonds, and the like. Since we’ve been running deficits since the Clinton administration, the debt is so enormous that the associated interest payments are expected to exceed military spending in FY2024, $870 billion and $822 billion respectively.¹

The projected debt for that period is a gargantuan $35 trillion. We would have to run a negative deficit, namely a surplus, to pay off any of it. The federal government has not produced a surplus in more than two decades.

If you were an Art Institute student between 2004 and 2017 and you paid back a nickel of your student loan, you are a sucker. If you didn’t take out a loan, you should have, and you should have gleefully refused to pay it off. You didn’t know this at the time, but too bad for you. There’s a speculative argument that educated taxpayers make more money and, in the long term, pay more to the government than uneducated ones. But majors connected to the arts have the highest unemployment rates and don’t contribute much to the effect, assuming it exists.

Even if you’ve never heard of The Art Institutes, you as a taxpayer are on the hook for the remaining unpaid debt borrowed during the run of all AI campuses under the management of EDMC. What are you, as the effective lender, getting for your investment? Bupkis, really. At the moment you benefit from a reasonably comfortable economic order, but it’s based on debt, and any old thing could come along and kick it flat.

You would need a trained legal mind to understand the details of the Biden administration’s effort to alleviate student loan debt, which was mostly struck down by the Supreme Court last year. But parts survived and were deemed lawful by an appellate court in May. The Guardian article that summarizes all this notes at the end that

A Bankrate survey found that “nearly one in five Americans say student loan debt will have a major influence on their vote in the 2024 presidential election”.

In other words, Team Biden is buying the youth vote, which for obvious reasons it deems more urgent than the state of the economy on the day after November 5. A baby born today comes into the world associated with a per capita federal debt of $102,409, but that’s a small price to pay for a Biden victory this fall. If her parents are clever, when she turns 18, they’ll take out a nice, fat federal student loan and throw the bills from the lender unopened into the trash.

Content at DMJ is free but paid subscriptions keep it coming. Please consider one for yourself and thank you for reading.

Our current title in the Asynchronous Studio Book Club is Old Masters: A Comedy by Thomas Bernhard. For more information, see the ASBC homepage.

Dissident Muse’s first publication, Backseat Driver by James Croak, is available now at Amazon.

Aphorisms for Artists: 100 Ways Toward Better Art by Walter Darby Bannard is out now at Allworth Press. More information is available at the site for the book. If you own it already, thank you; please consider reviewing the book at Amazon, B&N, or Goodreads.

1. Source. The answer to the question posed in the title of that article is “Yes, a lot.”