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Trump’s budget moves to end the college tuition rip-off

  • The Trump student loan plan is like an intervention for colleges addicted to tuition increases.
  • Taxpayers are footing the bill for schools to use poor and middle class students as bait.
  • More needs to be done to force universities to stop gouging the public.
Students pull a mock 'ball & chain' representing the $1.4 trilling outstanding student debt at Washington University in St. Louis, Missouri.
Paul J. Richards | AFP | Getty Images
Students pull a mock 'ball & chain' representing the $1.4 trilling outstanding student debt at Washington University in St. Louis, Missouri.

Thanks to President Donald Trump's new budget, we might just start to cut off some of the most abusive addicts in America: Colleges.

Yep, colleges and universities in America are addicted to taxpayer-subsidized tuition. That's why they keep jacking up tuition faster than the rate of inflation. And that's why they really don't care how much debt your child is straddled with when they graduate. Because whether you pay or don't pay, succeed in life or fail, government-backed student loans make sure the schools get their money, and get it fast, first, and always.

Have a nice day.

Student loan programs backed by the government have been around since FDR was president. But as former Education Secretary Bill Bennett pointed out, tuition inflation really started in 1978 when more loans and subsidies became available to a greatly expanded number of students. In 1980, college tuition began rising year after year at a rate that exceeded inflation. It's no coincidence.

To put it even more simply, colleges and grad schools are charging so much because they can. And they can because the government makes it possible. According to an extensive 2015 study by CNBC, the cost of college tuition has risen by six times more than the rate of inflation since the 1970s. This is not normal. And we the taxpayers pay for all of this, whether we went to college, took out loans, or even like college sports.

And since the taxpayers keep paying for it, the result is that we now have a shocking $1.5 trillion in student loans outstanding according to Collegedebt.com and several other college lending data sites. And the drag on the overall economy created by those loans has been well documented by economists who have shown how the massive debt affects economic mobility, entrepreneurship, and even normal family life.

"The proposed change that's raising the most hackles is the plan to eliminate a program that subsidizes loans for low-income students by having the government pay the interest on their loans while they're still in school."

Let's stop for a second and note that President Trump isn't the first to try to do something about this. The Obama administration deserves some credit regarding the troubled so-called "for profit college" industry.

Team Obama went hard after them with the "Gainful Employment Rule," which put schools at risk of losing federal financial-aid funding if a typical graduate's student debt exceeds 20 percent of his discretionary income or 8 percent of his total earnings.

And last December, the Obama Federal Trade Commission made a deal with DeVry as the school paid $100 million to settle a case for allegedly making misleading claims. But for-profit colleges are just a drop in the bucket and they were always a more safe target than traditional universities with powerful donors and plenty of political backers.

Now it's President Trump's turn and while he's starting by targeting the loan programs that enable all colleges and grad school tuition increases, he's still starting rather modestly. The proposed change that's raising the most hackles is the plan to eliminate a program that subsidizes loans for low-income students by having the government pay the interest on their loans while they're still in school.

On it's face, it looks like the White House is taking something away from poorer people. But in reality, what this does is take away the ability of schools to continue using the poor to grab taxpayer money. Remember, all this program does is pay the interest. Colleges can keep jacking up the cost of the loan principal all they want.

If this plan goes through, they're going to have to prove they want to educate those poorer students by lowering their tuition costs. They need to put their money where their mouths are, period.

The change the Trump team wants to make that will affect the most people is the plan that would cap the monthly payment for student loan borrowers at 12.5 percent of their income. After 15 years of paying that 12.5 percent per month cost, the remainder of the undergraduate's loans would be forgiven.

For a lot of borrowers, this would be an improvement over existing plans that force them to pay a higher monthly percentage of their income. But for the people who have plans with monthly income-based requirements as low as 10 percent, this will be a costlier new reality.

In many ways this is the biggest disappointment in the Trump plan. As pricey as 12.5 percent sounds, it's the same or darn close as the current minimum payment requirements and that 15-year window sure looks like a nice incentive for colleges to keep jacking up tuition prices anyway.

A much better part of the Trump plan is the change they want to make for grad students who would be required to keep paying at least that 12.5 percent for 30 years. The guess is that grad students are a better bet to pay off their loans and should be forced to do so for a longer time.

That should help pay at least a little more to help offset undergraduate loan costs and defaults. And it also might force more grad students to balk at that 30-year millstone and either push for lower tuition costs on their own or choose another life path. Right now, taxpayers are enabling universities to push up the sticker price with the knowledge that the students they crave won't have to pay the whole bill while the taxpayers will.

So much more needs to be done. The Trump plan does not force schools to cover up to 50 percent of the costs of all their students' and ex-students defaulted loans. A lot of people in Washington favor that idea that would surely give pause to every school whenever they think about raising tuition. And there's no call to tax the endowments of large universities that don't keep tuition in line with overall inflation.

But this is a good start. It starts to send the colleges a message they've needed to hear for at least 30 years. It's a message of compassion to students, parents, and all taxpayers who have been taken for a ride for too long.

And for those who keep saying that the value of a good education is priceless it forces them to answer the question of why so many schools keep putting a price on it that we cannot pay.

Commentary by Jake Novak, CNBC.com senior columnist. Follow him on Twitter @jakejakeny.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.