Mark Cuban's Unbelievably Stupid Student Debt Solution

Cuban should stick to the business of business, and leave public policy to those who actually know something about running a government.
Ben Cohen
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Cuban should stick to the business of business, and leave public policy to those who actually know something about running a government.

Mark Cuban, owner of the Dallas Mavericks, is a billionaire who is presumably pretty good at making boat loads of cash. Cuban made his $3 billion fortune selling the video portal site to Yahoo for $5.7 billion in 1999 - a clever move given the tech bubble was about to burst and everyone in Silicon Valley realized they had been pumping money into worthless garbage.

Whether Cuban made his fortune through timing and luck or skill and graft is up for debate, but his experience as a successful entrepreneur must be respected. If you want advice on how to flip businesses in the modern economy, he's probably a good guy to listen to. Cuban is also pretty good at deflating the dreams of other entrepreneurs on television, so there's that going for him too.

But when it comes to policy advice, Mark Cuban is probably not the guy you want to go to, despite his seemingly unwavering belief in his own prophetic wisdom. Here was Cuban riffing on student debt, and why he thinks Hillary Clinton's plan to make community college free, taxing the wealthy and allowing students to refinance current debt at a lower rate is 'backwards':

[Hillary’s plan] stands a better chance of increasing the amount of money students owe than decreasing it. How? Just as easy money led to the real estate bubble a few years ago, the easier it is to borrow money for college the easier it is for colleges to raise tuition. Tuition keeps going up because no matter how high they raise it, students can still borrow more to pay for it....

It doesn’t require any change in how a school receiving funds operates. They can still waste money. A lot of it. Competition for new students is fierce. So schools spend billions on perks they think will attract students and donors. They build new buildings, gyms, food courts, dorms, anything that they think provides drive up curb appeal to prospective students. To manage all of the above they hire more and more expensive administrative positions. All of which do nothing to improve education. Instead they just provide justification to increase tuition.If you meet a rich person who gave money to build a new building at your Alma mater, don’t thank them. Explain that the maintenance of that structure and the people who manage it are going to increase tuition for future generations.

Basically, Cuban is saying the student debt crisis has been caused by easy loans and rich people donating money to colleges. This analysis is not totally wrong, but it is, for lack of a better word, lazy thinking - particularly coming from someone deemed so successful by society.

Cuban is essentially taking his predetermined views about economics and fitting the facts to mesh with his world view. Cuban is an extreme free marketer, and therefore believes everything can be fixed by free markets. Here is his solution to the student debt crisis and the soaring costs of college:

I would like to see a limit on the amount of private loans a parent or relative can take out or co-sign per year per student. I’m open to anything that reduces the amount of cash available to students to pay for school. That won’t reduce the number of students who will go to college. It will reduce the amount of money they have to pay to go as colleges reduce tuitions to be more competitive.

Where to start with this nonsense...

Firstly, you cannot equate higher education with the real estate market - they are two totally different things and must be treated as such. Cuban views education and real estate as pure businesses, and this the fundamental problem with his analysis and solution.

In Germany, higher education institutes are not run to make short term profit. They are completely free and students do not start careers burdened with hundreds of thousands of dollars in debt. This is a rational policy that yields tangible results - Germany is a solid growth economy that has been able to weather the storms of global financial uncertainty while still investing heavily in its people. According to Cuban though, the state spending that much money on education would not only result in rising costs, but an economic catastrophe. The truth is unsurprisingly, the complete opposite. As MarketPlace reports:

The average cost of an undergraduate degree in Germany is $32,000, paid for by the state. In the U.S., some schools charge that much for one year, and student loan debt has surpassed $1.2 trillion.

Cuban's suggestion that simply limiting the number of private loans available for a single student is just not serious. Firstly, that would require government intervention in the sacred market place - a slightly strange policy suggestion from someone wedded to the belief that free markets make everything better. Secondly, it would rob a generation of Americans of the opportunity of going to college. The system is broken right now, but making less money available for students is absolutely not the way to go about it. This would be akin to suddenly dramatically cutting funding for health insurance subsidies and hoping Blue Cross and Aetna kindly drop their rates.

Hillary Clinton's plan has exactly the right idea - create a viable alternative through investing in free higher education, and ease the burden on current students by refinancing debt. These solutions attack the heart of the problem - and that is the notion of higher education being primarily a business.

This philosophy, espoused by people like Cuban, insists that more competition always results in lower costs. But as we have seen with the college system in America, the exact opposite is true. The US has the second highest number of universities in the world (behind only India - a country with 1.25 billion people), and is by far one of the most expensive when it comes to tuition fees. The logic is clear - competition has not lowered costs.

Cuban is not necessarily wrong in his analysis that American universities have become hugely wasteful bureaucracies, but temporarily starving them of funds by cutting off student loans won't do anything to improve education. It would just bankrupt hundreds of universities, prevent students from seeking higher education, and overcrowd better funded universities while still putting them into excessive debt.

The university system is in dire need of a dramatic overhaul from the top down. For starters, providing free tuition to state colleges is a no brainer, and strictly regulating how approved higher education institutes spend their money on infrastructure and bureaucracy is another. Private health insurance companies now have limits on how much of their budget they can spend on advertising thanks to Obamacare, so why not universities? Rather than externalizing costs by passing them onto students, colleges would be required to spend a specific percentage of their income on actual education rather than giant salaries for non academic staff, fancy gymnasiums and food courts. By doing this, you would dramatically decrease costs while keeping the university system - which is one of the best in the world - alive.

Hillary Clinton would never dare lecture Mark Cuban on how to run a business, so why Cuban thinks he has the credentials to tell political veterans like Clinton how to run government policy is perplexing to say the least. Cuban seems to believe that by virtue of being insanely rich, he gets to tell everyone else how to do their jobs (a bit like a certain Donald Trump, whom Cuban appears to be enthusiastically supporting).

While Cuban may genuinely have student's wellbeing in mind, he should stick to the business of business, and leave public policy to those who actually know something about it.