Under the general economic pressure of the pandemic and with Democrats looking likely to recapture the White House, plans for mass student loan forgiveness are being floated. Senators Chuck Schumer and Elizabeth Warren have urged Joe Biden to forgive $50,000 in debt per borrower with the stroke of a pen by stretching the Higher Education Act authority given to the Department of Education. And Biden himself has begun to make statements about forgiving student loan debt.
Joe Biden announced Monday that he supports “immediately” erasing at least $10,000 per person in student loans, and signaled he might be willing to forgive more. Biden added, “In addition to that, as you know, I think that everything from community college straight through to doubling Pell grants, to making sure that we have access to free education for anyone making under $125,000 for four years of college.”
Mostly false or misleading. Significant errors or omissions. Mostly make believe.
With every misleading statement or policy, there’s a grain of truth that makes it convincing. Americans, particularly those under the age of 45, really are suffering under the burden of over $1.6 trillion in outstanding student loan debt. Forty percent of those holding student loans were on track to default by 2023, and those numbers don’t take into account the current economic crisis facing many families.
But student loan forgiveness fails to address the root of the problem, while increasing grants and making college “free” actually make it worse: the cost of a college degree is way too high. We cannot find a way out of the student debt problem until we address the college cost problem.
The price of tuition has risen above inflation for decades, and even the cost of a degree from public university has nearly tripled in the last 30 years. Add in textbooks and living expenses, and it’s not unusual for a degree to range in cost between $80,000 and $160,000, well beyond what the average 18-22 year old can “pay off” by working in evenings and summers.
Unfortunately, student loan forgiveness and increasing grants makes the inflationary pressure on the cost of a degree worse, not better. One major reason for the cost increase has been – you guessed it – federally-backed student loans. More than nine in ten student loans are originated or held by the federal government today, and unlike a private bank, Uncle Sam doesn’t evaluate whether a high school student is likely to be able to pay back a five- or six-figure loan. The “Bennet hypothesis” – named after Reagan’s Secretary of Education who first advanced the idea that easy federal loans were creating a cost crisis – is no longer a hypothesis. The Federal Reserve Bank of New York found that for every single subsidized taxpayer dollar a university takes, its sticker price increases by 60 cents.
Government interference into the student loan market has had other negative consequences as well. Because every high school graduate represents a blank check, universities have started accepting academically underprepared students to pad their bottom lines. The six-year graduation rate from four-year institutions is only 60 percent, meaning that four in ten students gets the rawest deal of all: student debt and no degree. The increase in the number of degree-holders also impacts the number and quality of jobs available to those with a high school diploma, as more employers feel they can demand a degree for jobs that previously did not require one.
As researcher Dr. Neal McCluskey wrote in The Not-So-Great Society, instead of helping students of lesser means – who make up a smaller proportion of university students today than they did when loan programs started in the 1960s – “Federal ‘help’ has… powered a credential treadmill that has forced everyone to run faster just to stay in place.”
Student loan forgiveness sounds compassionate, but it bails out some Americans at the expense of others, while making the underlying college cost problem worse. Instead, we should be looking to draw down student loans and restore some natural limitations to the price of a degree, as well as looking at alternative education financing like income share agreements. Most importantly, we need to push back against the notion that a four-year college degree is always the best path to success, especially if it comes with the anchor of massive student loan debt that can haunt a student’s post-graduate success.