In last week’s edition of the US government’s favorite game, “Kick the can down the road,” President Joe Biden announced the cancellation of $7.4 billion in student debt for 277,000 borrowers.
In a world without consequences, this would not be a problem. However, $7.4 billion (and $153 billion total in loans canceled) is hardly an inconsequential amount.
Outright cancellation of student debt does more than create an unwarranted tax burden for American bystanders. It allows colleges to be absolved of all wrongdoing despite their pivotal role in orchestrating this financial mess.
For decades, far too many universities and colleges have refused to look inward and address their rising tuition costs.
From 1970 to 2020, tuition and fees at public non-profit and private institutions increased by 2,580% and 2,107%, respectively. Average income has grown at a much slower pace, creating a scenario where, as of 2020, public university students must work six times the amount of hours as their 1970 counterparts to afford tuition.
At many schools, tuition is not even raised out of necessity. It is a status boost.
In a 2012 interview with The Atlantic, former president of George Washington University Stephen Trachtenberg said, “People equate price with the value of their education.”
Trachtenberg highlighted his other status-enhancing moves like ice cream socials, $2,500-per-minute laser shows and keeping campus in a constant state of construction.
People like Trachtenberg are polluting the upper echelons of America’s top universities at an alarming rate.
Schools like Yale University are rapidly expanding administrations. Nationwide, instructional spending and administrative spending now account for almost the same percentage of university expenditures.
In his recent paper, Todd Zywicki, a law professor at George Mason University, said, “The interesting thing about the administrative bloat in higher education is nobody knows who all these people are or what they’re doing.”
For-profit universities like Yale are the worst offenders. Despite enrolling roughly 10% of the higher education body, for-profit schools now account for 50% of all student loan defaults.
Higher education has become a business model courtesy of a conglomerate of Trachtenbergs who hardly care if students default on loans.
And why should they care? The financial downside is limited. The upside of getting someone to pay your university 50 to 60 grand a year is obvious.
Canceling student debt does nothing to incentivize colleges to rein in this irresponsible financial behavior.
Instead of relying on bailouts, which create long-term economic issues and only add to the absurd $34 trillion national debt, the focus should be on holding colleges accountable.
Solutions should start with loan cosigning between the government and schools. Increased financial liability forces institutions to prioritize student success and allows taxpayers to shoulder less of the burden from larger entities covering a portion of potential losses.
To induce greater accountability, offer financial incentives for schools that avoid excessive and unnecessary costs. Determining these costs may be tough, but it could force colleges to re-evaluate their resource allocation.
Any solution should force the government to reconsider its involvement in student loans.
Varadarajan V. Chari, a director of graduate studies in economics at the University of Minnesota, said to address its role in the dysfunctional student loan market, the federal government should scale back its intervention and instead focus more on offering grants, which are much harder to play accounting games with.
“The federal government, by essentially nationalizing this entire industry, has ensured that there is no market discipline on any of these activities,” Chari said.
There is another critical factor in this debate: majors.
Before telling 18-year-olds to forgo their dreams and become electricians or plumbers, consider the perspective of universities with archives of post-grad financial data on each major, giving them a pretty good idea of who can successfully pay back loans.
Christopher Phelan, an economics professor at the University, said too many universities hardly consider this.
“I don’t see why universities shouldn’t have skin in the game, because they have a lot better information about which particular courses of study are going to put you in a position to pay the loans back,” Phelan said.
Telling a financially insecure 18-year-old to take out a loan, go through a degree program and spend money on your university despite knowing they will struggle to pay it back is borderline criminal.
Perhaps not all universities are acting in bad faith when it comes to loans, but there is a well-documented tendency of administrators whose primary concern is money and prestige.
Instead of involuntarily signing up a generation of people for even more debt, why not address this widespread issue within our schools?
College can be extremely valuable, but it is becoming an increasingly questionable investment for a reason.