What Happens If We Abolish the Department of Education?

Lately, conservative Republicans seeking the presidency love to discuss which cabinet level departments they would abolish should they become President. Texas Senator Ted Cruz unveiled a plan to abolish four (the Departments of Education, Commerce, Energy, and Housing and Urban Development), plus the Internal Revenue Service and 25 other agencies with names that make conservatives angry (there's one about salmon). If Cruz went were elected and went through with his plan, what would that look like for higher education?

When Cruz says he wants to abolish the Department of Education, I take that to mean he wants to kill all existing programs and funding within the department. No more Pell grants, no new federal student loans, no more Title IX enforcement, nothing. And just moving programs to another department is cheating, so let's assume Cruz wouldn't do that.

Cruz would eliminate the largest education voucher program in the country

Right off the bat it’s worth noting that by eliminating Pell and loans, Cruz would kill by far the largest education voucher system in the country. Republicans are usually in favor of vouchers, but perhaps Cruz is opposed to federal vouchers because of states' rights.*

That probably wouldn't go over very well with the for-profit higher education lobby, which relies on federal dollars to stay open. Same goes for the private non-profit colleges. Within the first year, many private schools would likely close, and probably a fair amount of community colleges as well. Other state public schools would also be hit hard from the lack of grants and loans, but their relative position compared to the private schools would probably improve, because the state subsidies allow for their tuition to be lower so more students would be willing to enroll in those schools.

Cruz's plan would likely increase state spending for higher education

But that increase in demand for state subsidized higher education actually increases the burden on states, which would feel the pressure to expand the number of seats available and pay for it through tax increases. So while Cruz’s plan would certainly decrease the number of people going to college overall, it would also increase the number wanting to go to state subsidized schools, and likely increase the state's tax effort for public higher education. That’s in keeping with Cruz’s states' rights principles, but probably not in keeping with his distaste for publicly subsidized state schools. Also, given just how important higher education is as a sector of the economy in many parts of the country, such a decrease in federal aid would possibly lead to a mild recession, at least in certain areas.

Cruz’s plan is also no help to any of the lobbyists for the banks that want to go back to guaranteed lending, the program the government had in place before it switched to all direct lending (or, as I imagine Cruz calls it, ObamaLoans). Despite what Republicans say, the old program was not a free-market mecca: it was a subsidy to banks. That's corporate welfare, so Cruz should be opposed to it on principle, but even if he isn't, it doesn't matter because guess who subsidized the banks in the old system? The Department of Education.

But the biggest question mark is what to do with the 1.2 trillion dollar loan portfolio that the Department of Education currently administers. The easiest option, administratively, is to forgive all of the debt, but I'm guessing Cruz wants those dollars back. The other option would be to sell the entire portfolio in the private market. Given how risky the portfolio is, the generous terms like Income-Based Repayment that must be offered for every loan, the decreased powers the private entity would have to claw back the dollars (no more garnishing tax refunds), the new infrastructure required of the private entity to administer the program, and the teams of lawyers and investment bankers needed to organize an auction, the government would almost certainly lose money from selling the portfolio. The last option, of course, would be to move the loan portfolio to another entity, like the Department of Treasury, but, again, that feels like cheating.

As it turns out, abolishing the Department of Education is probably harder than Ted Cruz thought. Unless, of course, he was never really serious in the first place.

*Cruz's more detailed plan says he would keep the Pell grant program in place and have it administered through the Treasury Department. This would be an expensive switch, since Treasury has no previous knowledge of how to administer aid to schools, but theoretically doable. However, I still consider it cheating."