Student debt is the second largest category of debt in the United States behind only home mortgages. There is $1.6 trillion in outstanding student debt, a burden currently shared by one out of every six adults, although an experience shared by many more (including me) who have retired their student debt.

I have a difficult time understanding people who suggest there are simple solutions to America’s student loan debt problems. Sure, there are simple things we can do—for example, we can cancel the debt or we can do nothing—but those decisions have cascading consequences, many of which are really harmful.

Clearly, burdening young Americans with large amounts of non-dischargeable debt risks economic suicide for our country. Not only are we suppressing entrepreneurship and innovation, we’re causing delayed family formation and foregoing all the stability and civic participation that kind of maturing naturally induces. We’re delaying, if not completely sidelining, a generation of this country’s future leadership. I think of the many life lessons I learned in my 20’s and recognize how few of those risks would have been taken if I had been a slave to student debt payments. The case for getting rid of this debt is strong.

Yet, canceling student debt—if that is the simple action we take—should make everyone uncomfortable. First, it’s another signal to universities that their disconnect from economic reality—and the need to serve the best interests of their clients (the students)—can continue unabated. Absent any serious reform, canceling student debt is more like a full-employment guarantee for bloated administrative bureaucracies than it is a commitment to an educated public.

Second, none of us should want to reward the banks that made these predatory loans. When the government let banks know that they were guaranteed not to lose money on student debt, that they would use the heavy hand of the state to keep borrowers in financial purgatory, it gave every incentive for banks to make loans. Yes, that made it easier to lend to risky and distressed borrowers—providing greater access to funds was a goal of this legislation—and that got more people into college, but at the expense of those borrower’s future prosperity. This is a trade that should have more decision-making friction, not less.

I could go on, but the core point here is that most people I know have a strong opinion on student debt, either supporting broad debt forgiveness or allowing the difficulties of the over-indebted to linger and serve as a warning to others. I find neither of these mindsets to be a serious policy that approaches anything we would think of as a “solution,” yet I’m at a loss trying to express the many things that would need to happen to make our obviously broken system of university funding work better.

I’m at a loss, but I think the complexities and hazards of dealing with the student debt problem is far easier than dealing with the complexities and hazards of the New York Metropolitan Transportation Authority (MTA) and their massive funding shortfall. From the New York Times, ”MTA Warns of Doomsday Subway Cuts Without $12 Billion in Federal Aid”:

Facing a staggering financial crisis and a stalemate in Washington, the Metropolitan Transportation Authority threatened on Wednesday to adopt a doomsday plan if it did not receive as much as $12 billion in federal aid, including slashing subway and bus service in New York City by 40 percent.

My initial reaction to this assertion was that it was preposterous. And offensive. Per square foot, New York City is the richest real estate in the nation. That wealth is intrinsically tied to the transit system operated by the MTA. There is not one without the other; without the transit, there is not that level of wealth, and without that level of wealth, there is no transit.

Yet, thinking about it more deeply, it’s clear that the second part of that statement isn’t true, at least not in 2020. The MTA is not funded by some sort of land value capture or wealth tax from the properties it serves, even though the existence of the transit system is generating massive levels of wealth. The MTA is funded like nearly every messed up transit system in this country—through federal and state matching grants that induce the operating agency to take on crippling levels of debt for capital projects, and fare box collections to retire debt and pay for operations and (theoretically) maintenance.

Without the transit system operated by the MTA, the wealth of New York City is vastly diminished. Yet, unless there is something I’m not grasping about how the MTA is funded (which is possible—it’s difficult to unravel), there is no relationship between the wealth of New York City and the revenues that go towards sustaining their critical transportation infrastructure.

This is ridiculously fragile, as we can now clearly see. The pandemic has dramatically reduced ridership, and thus fare collection, which has precipitated the current crisis. Debt payments are fixed and ridership revenue is not. If you are going to fund such a system through ridership, you have to be very conservative about debt and capital buffers. The MTA has not been.

While the pandemic has accelerated things, a crisis over debt at the MTA has been in the works for a long time. This year, nearly 80% of fare and toll revenue goes to making debt payments. Projections have this dropping to around 50% within a couple of years, assuming a return to pre-pandemic ridership levels. Debt levels are too high. Having ridden the MTA—not one of the world’s most amenity rich transit experiences, to state it kindly—I shudder to think of what this debt was used for.

If you are a New Yorker, if your prosperity, let alone the value of your real estate investments, are tied to the quality of transit service, how do you react to this statement (again, quoted from the New York Times):

“The future of the M.T.A. and the future of the New York region lies squarely in the hands of the federal government,” [said] the authority’s chairman, Patrick J. Foye.

The future of the New York region is going to be decided in Washington, D.C.? New York City, how you can possibly allow that to be true?

And if you live in pretty much any other city in the nation—places without Manhattan, Wall Street, billion dollar skyscrapers, and hoards of real estate wealth—how sympathetic are you bailing out the MTA? Why would New Yorkers not just pay for this themselves?

A bailout of student debt is a good lens in which to think through an MTA bailout. In both instances, it is clear that there is something structurally wrong with the underlying system—the outcomes we’re seeing are the result of decades of bad policy feeding back into bad decision making—yet, it is difficult for an outsider to discern exactly what needs to be reformed.

And like student debt, there is clear and overwhelming harm being done by not approving a bailout. With the clock ticking on both issues, it seems inevitable that taxpayers….I mean, money printers (taxpayers are so last century)...are going to be pushed to approve relief first, reform second (or not at all). That seems a recipe for further malaise and bad decision-making.

Given the wealth of New York City, the MTA should be the most well-run, amenity-rich, borderline luxurious transit system in the world. Instead, New Yorkers are being cheated by having a cash-strapped transit system dependent on the whims of senators from “flyover country.”

If it were me and I ran the printing press, I would give the MTA the $12 billion it wants. I would then offer to retire their $35 billion in debt if they—the MTA, as well as the city and state governments—would restructure their funding approach so that value capture was used to fund system expansions, a broad real-estate tax was used to fund maintenance, and the fare box was dedicated to funding operations.

If they do that, the MTA could forever fund the world’s greatest transit system and never need another bailout, or even a capital grant. I can sell that deal to my neighbors in flyover country because now they are out of the bailout game. Everyone wins.

For those of you balking at my indiscriminate use of federal funding to achieve reform of the MTA, trust me in that it was not my first reaction. Yet, a couple of statistics softened my approach, especially in this moment when we’re determined to run the monetary experiment of free money for everyone (at least everyone elite and well-connected).

Pre-covid, the MTA had a daily ridership of 5.5 million people. Last year, the nation’s airlines averaged 2.9 million passengers per day. So far, the privately-held corporations that run the nation’s airlines have received $25 billion in grants along with $35 billion in loans on very generous terms.

Instead of using their profits over the last decade to create a rainy day fund, these corporations spent billions buying back their stock in order to jack up their share prices and lavish huge bonuses on their executives. They should all be out of business, their airlines broken up, with new capital buying the parts and retaining wiser and shrewder management to start fresh. That’s how capitalism is supposed to work and it should sicken everyone that it doesn’t anymore.

The MTA funding structure is a mess. Now is the time to fix it.

New York transit is facing "Doomsday" cuts. Should non-New Yorkers bail it out?

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