The next student loan crisis
President Biden's student debt cancellation plan is welcome news for millions of existing borrowers, but it does little to address high college costs that will burden future students.
Why it matters: Student Defense, a nonprofit that is pushing for broader systemic changes, compared the plan to bailing the water out of a sinking boat without plugging the leak.
By the numbers: Higher ed costs are astronomical, including for graduate programs, even though "sticker price" inflation has moderated in recent years.
- Average in-state tuition for a four-year public university is $9,410 per year, and more than doubles to $23,890 for out-of-state students, per The College Board. Average four-year private university costs are $32,410, per year, or nearly $130,000 for the diploma.
- For context, the median family income in 2021 was $79,900. If such a family has two in-state college students, 23.5% of their pre-tax income would be consumed by college costs (minus financial aid and/or federal loans). If the kids attend a four-year private school, it would be 81% of the family's pre-tax income.
- And none of this includes room and board.
Why costs are so high: The simplest answer is that schools have had little incentive to control costs, particularly when abundant student loans — both public and private — can make tuition rates appear more affordable than they really are.
- Moreover, some schools are motivated to spend on high-ticket items like new construction, because that can attract wealthier students (including from overseas) who don't request financial aid. In the end, however, those costs often get passed down to everyone.
This is a systemic issue, which explains why most politicians have preferred to play along the easier margins.
- Biden's primary responses to future loan obligations have been to increase the size of Pell Grants, to crack down on predatory schools and to reduce monthly repayment percentages. None addresses the costs of the product being financed.
There are possible solutions that have been circulating among education experts, not all of which rely on taxpayer largesse like making public college free for lower-income students.
- One would be to limit loans tied to education at schools that have a demonstrated history of onerous student debt burdens. In other words, if most of a school's students aren't receiving the sort of education that allows them to pay off their loans, cut it off at the source.
- This could include a gainful employment rule focused on career programs, which is favored by the Biden administration but languishing in Congress.
- Another would be to deny federal research grants to schools whose tuition rates increase at an unacceptably high level. This would be particularly impactful at large public and private universities.
- The federal government also could consider revoking the tax-exempt status of schools that exceed tuition inflation limits, although that likely would face court challenges.
The bottom line: Debates over student loan cancellation will continue to rage through the midterms. Debates over student costs hasn't even begun.