Answer to Student Loan Forgiveness Riddle: Make College Affordable

Forgiving loans will cause future students to believe their loans will also be forgiven. That will likely lead a higher percentage of students to borrow more money given the expectation that it will be free. That in turn will further encourage schools to continue to raise prices.


As the Biden administration reportedly debates whether and how much to forgive student loans, it is focusing on the wrong objective: how to help individuals afford college instead of making college affordable.

The difference isn’t semantic.

Subsidizing an increasingly costly higher education and forgiving student loans simply encourages the rising costs of higher education and the poor value for far too many students.

Policymakers should instead focus on boosting the value of college by making it less costly with better outcomes, so the question of how to afford it becomes manageable.

As the loan debate has raged on and reports have suggested that President Biden will do what candidate Biden said he would do — forgive up to $10,000 in federal student loans for all individuals who hold them — the push back has focused on a few items: whether Mr. Biden has the authority to take such a step without congressional approval and the inherently regressive nature of blanket loan forgiveness.

Whether Mr. Biden has the legal authority to forgive student loans is unsettled and perhaps doubtful. But given that his administration has followed his predecessor’s approach since the start of the pandemic and continued to pause federal student loan repayments for all borrowers, the smart bet is that he will take some action. Then we may see what the courts say.

The other main counterpoint has been that blanket loan forgiveness is regressive — the opposite of the progressive policies those on the left say they support.

Fewer than 15 percent of Americans have student loan debt. In terms of annual income, the top 40 percent of households hold nearly 60 percent of outstanding student debt. Nearly 40 percent of debt was taken out to pursue graduate degrees.

As Senator Sasse, a Nebraska Republican, wrote, “The typical student-debt holder is more likely to be white, is more educated, and has more earning potential than the median American.”

What’s more, given that more than 50 percent of American adults don’t have a college degree, this policy would leave them — along with the many taxpayers who took out student loans and have dutifully made their payments — holding the bag. As Beth Akers of the American Enterprise Institute has written, that has consequences for supporting other programs designed to help low-income Americans.

Even more perniciously, forgiving student loans continues Washington’s historic focus on helping individuals afford education, regardless of the cost and value.

That’s because forgiving loans will cause future students to believe their loans will also be forgiven. That will likely lead a higher percentage of students to borrow more money given the expectation that it will be free. That in turn will further encourage schools to continue to raise prices.

This represents a bailout of the many colleges from which more than 16 million students have dropped out and now have debt but no degree or the smaller number of students who have graduated with debt but not been able to find good jobs.

It also will lead to a vicious circle of allowing students to afford colleges that offer too little in value.

This distracts from and crowds out the more urgent work of creating more options that are fundamentally valuable — offering affordable educations with good outcomes for students.

Over the last several years there has been a wave of new innovative programs that are faster and less expensive than traditional college programs. These range from educational training programs that help get students their first jobs to coding bootcamps, online programs, apprenticeships, as well as brand-new institutions like Minerva University, where I serve on the board. Minerva is a selective liberal arts college that has a price tag less than half of Harvard’s.

Subsidizing traditional colleges that have poor outcomes and are expensive by forgiving student loans merely delays the rise of these programs that would be far more beneficial to students because it distorts individuals’ decision-making.

It also does nothing to contain the true source of rising costs in college — a lack of economies of scale, fixed costs, and complex operational models — which taxpayers will in turn bear.

Policymakers could play a more productive role by encouraging the rise of entrants, supporting policies that cause institutions to share in the risk with students, and exploring lifetime education savings accounts that empower individuals to make choices and tradeoffs.

There is one other possible outcome if the Biden administration insists on forgiving student loans. When back in the majority, Republicans may try to end the focus on charging education instead of changing it by eliminating student loans in the future.

That would be unfortunate in that it would place yet another policy in the realm of the constant pendulum swing between Republicans and Democrats, which would create even more uncertainty in the world of higher education and postsecondary training.

But it would change the conversation in Washington from merely charging higher education to taxpayers to seeking out ways to make college affordable and valuable.

The New York Sun

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