By Jason DeLisle & Preston Cooper
Wednesday, June 10, 2020
Throughout this election cycle, progressives have pushed
for a two-part solution to the so-called student-debt crisis — and Joe Biden is
now on board with their aims.
Biden has called for forgiving student debt — at least
$10,000 per borrower — and endorsed Senator Bernie Sanders’s original plan to
make public colleges and universities free for families earning below $125,000
a year. Student-debt forgiveness is supposed to atone for past policy sins
while free college is supposed to avoid future ones. Here is how Senator
Elizabeth Warren describes the two-pronged approach:
Once we’ve cleared out the debt
that’s holding down an entire generation of Americans, we must ensure that we
never have another student debt crisis again. We can do that by recognizing that
a public college education is like a public K-12 education—a basic public good
that should be available to everyone with free tuition and zero debt at
graduation.
These arguments for free college are, it may not shock
you to learn, wildly overstated. In a new American Enterprise Institute report,
we show that tuition for in-state undergraduates at public colleges and
universities accounts for only a small share of student borrowing, no more than
15 percent of all federal loans. If tuition at public colleges plays such a
minor role in the supposed debt crisis, how can free-college policies such as
those proposed by Senators Sanders and Warren, and now by Biden, prevent
another such crisis? They can’t. Which means progressives will be back for more
grant aid, more price controls, and more loan forgiveness soon after their
policy is adopted.
Free college has a minimal impact on borrowing because
the students it targets aren’t doing much of the borrowing. It’s the students
who don’t qualify for free college who are borrowing the most. Graduate
students, for example, account for 43 percent of new borrowing. Another group
not covered — undergraduates attending private colleges or public schools
outside their home states — are responsible for an additional 30 percent.
Just 27 percent of student loans issued annually go to
in-state students attending public institutions who would be eligible for the
progressive free-college plans. Yet much of that debt doesn’t go toward
tuition, because the tuition prices that students pay at public universities
are much lower than free-college advocates assume.
The most recent data from the U.S. Department of
Education show that after all financial aid, full-time students at in-state
four-year universities who come from low- and middle-income families — a group
Biden would grant free tuition — pay about
$2,600 on average for a year of tuition and fees. At two-year colleges,
they pay a fraction of that amount. Given those tuition prices, free college
will have only a modest impact on new student borrowing every year.
Much of student borrowing at public higher-education
institutions actually finances living expenses, not tuition. And such borrowing
is likely to continue even after tuition is free. To be sure, the type of
free-college policy that progressives advocate would supplant some of the
borrowing for living expenses by converting the federal Pell Grant into a
stipend to pay for the same expenses; states couldn’t use it to meet the
free-tuition requirement. But even when we account for that feature, the
overall reduction in student borrowing due to a Biden-style free-college plan
would still be no more than 15 percent.
Note also that Biden and other free-college supporters
have no plans to shut down the federal government’s massive student-loan
program going forward. Even with a free-college policy on the books, we expect
that the government would issue over $1 trillion in new student loans
over the next ten years. Within just 14 years of the free-college policies’
taking effect, Uncle Sam will have disbursed $1.5 trillion in new loans — the
equivalent of the outstanding student debt today that so many advocates of loan
forgiveness have deemed a crisis.
Will progressives seek to expand free college with the
aim of eliminating the other 85 percent of student borrowing? Maybe. But it
would be a hard sell, politically and fiscally speaking. They would have to
fully subsidize tuition and living expenses for undergraduates at all private
colleges, not to mention students in all types of graduate programs.
Absent a serious reduction in the size and scope of the
federal student-loan program, then, advocates of debt forgiveness and free
college need to admit that outstanding student debt will soon climb back to
“crisis” levels. Free college will not solve this perceived “crisis.” It will
only kick the can down the road. Debt forgiveness, meanwhile, might even
accelerate the growth of student debt: If the federal government has
established a precedent of full or partial student-loan forgiveness, borrowers
may come to expect that more loan forgiveness will be in the offing once total
outstanding debt climbs too high, and indulge in more irresponsible borrowing.
All of which is to say that free college and loan forgiveness will almost certainly cost far more — and accomplish far less — than their supporters claim.
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