I have married children struggling under the weight of student loans. I should be happy for them, except that their loans are not of the federal variety, so they have to keep paying.
More importantly, I should be happy for the American people because so many federal student loans have been forgiven. That’s the narrative from the White House. But the facts tell me otherwise.
Politicians, especially during an election year, are great at distracting the public with shiny objects that hide harder truths.
More importantly, I should be happy for the American people because so many federal student loans have been forgiven. That’s the narrative from the White House. But the facts tell me otherwise.
Politicians, especially during an election year, are great at distracting the public with shiny objects that hide harder truths.
The Inflation Reduction Act was a prime example. Not only was it misnamed (it won’t reduce inflation), the extra money it provides for the IRS has led both Democrats and Republicans to argue loudly about everything but what really is needed — tax reform and simplification.
And now, President Biden is using his executive powers to forgive up to $10,000 in federal student loans for people earning up to $125,000 per year ($250,000 for couples), with more forgiveness for those who also have Pell grants.
Set aside, for the moment, the fairness issues (the Wharton School of Business says between 69% and 73% of the benefits of this will go to households in the top 60% of earners), and the unintended consequences (the Wall Street Journal calls it the “inflation expansion act”), loan forgiveness completely misses the point.
Higher education is too expensive.
Congress and the White House could do some things to address that, and these ought to be bipartisan efforts.
First, however, it’s important to understand that both major parties are inflicted with this problem. President Trump suspended payments for all federal loans as part of pandemic relief. The Biden administration has kept this in effect, and this has surely contributed to the nation’s inflation problem, pouring billions of dollars back into circulation.
But there are things the government could do, especially using the lever of controls over student loans.
When a student gets a federal loan, the college or university gets paid immediately through tuition payments. It’s up to the government to collect payments on the loan. This insulates schools from market pressures. Higher tuition rates ought to reduce demand, but the availability of loans distorts this.
As Forbes contributor Roger Ma wrote a few years ago, the result is that “in higher education, with the availability of federal student loans allowing people to close the gap between what they can afford and the price of an education, colleges continue to raise prices quite comfortably.
This was confirmed in a study by the Federal Reserve Bank of New York, which found a 60 cent increase in tuition for every dollar of student loan debt.
Ma suggested Washington could punish colleges that raised tuition above the consumer price index by restricting the loans available, and by forcing them to fund the excess tuition increases themselves. This would result in a decrease in demand for that school, forcing downward market pressures on the cost of a degree.
Congress also could threaten the tax exempt status enjoyed by many public universities to force downward pressure on tuition.
As I wrote in an earlier column, making college tuition more competitive might lead institutions of higher learning to begin charging less for degrees that lead to lower-paying jobs, and more for those that are financially rewarding. A side benefit might be attracting more people to the teaching profession.
The problem with these ideas is that they take real legislative effort. They don’t make for short, bumper-sticker campaign statements as Americans head into the fall campaign season. They take hard work and courage.
But loan forgiveness ignores this one important fact: Right now, millions of students are returning to colleges and universities, where they will be required to apply for yet more student loans in order to afford tuition and fees. The cycle will continue until politicians begin tackling the real problem.
And now, President Biden is using his executive powers to forgive up to $10,000 in federal student loans for people earning up to $125,000 per year ($250,000 for couples), with more forgiveness for those who also have Pell grants.
Set aside, for the moment, the fairness issues (the Wharton School of Business says between 69% and 73% of the benefits of this will go to households in the top 60% of earners), and the unintended consequences (the Wall Street Journal calls it the “inflation expansion act”), loan forgiveness completely misses the point.
Higher education is too expensive.
Congress and the White House could do some things to address that, and these ought to be bipartisan efforts.
First, however, it’s important to understand that both major parties are inflicted with this problem. President Trump suspended payments for all federal loans as part of pandemic relief. The Biden administration has kept this in effect, and this has surely contributed to the nation’s inflation problem, pouring billions of dollars back into circulation.
But there are things the government could do, especially using the lever of controls over student loans.
When a student gets a federal loan, the college or university gets paid immediately through tuition payments. It’s up to the government to collect payments on the loan. This insulates schools from market pressures. Higher tuition rates ought to reduce demand, but the availability of loans distorts this.
As Forbes contributor Roger Ma wrote a few years ago, the result is that “in higher education, with the availability of federal student loans allowing people to close the gap between what they can afford and the price of an education, colleges continue to raise prices quite comfortably.
This was confirmed in a study by the Federal Reserve Bank of New York, which found a 60 cent increase in tuition for every dollar of student loan debt.
Ma suggested Washington could punish colleges that raised tuition above the consumer price index by restricting the loans available, and by forcing them to fund the excess tuition increases themselves. This would result in a decrease in demand for that school, forcing downward market pressures on the cost of a degree.
Congress also could threaten the tax exempt status enjoyed by many public universities to force downward pressure on tuition.
As I wrote in an earlier column, making college tuition more competitive might lead institutions of higher learning to begin charging less for degrees that lead to lower-paying jobs, and more for those that are financially rewarding. A side benefit might be attracting more people to the teaching profession.
The problem with these ideas is that they take real legislative effort. They don’t make for short, bumper-sticker campaign statements as Americans head into the fall campaign season. They take hard work and courage.
But loan forgiveness ignores this one important fact: Right now, millions of students are returning to colleges and universities, where they will be required to apply for yet more student loans in order to afford tuition and fees. The cycle will continue until politicians begin tackling the real problem.
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