Tuition fees are out of control. Canceling student debt won’t solve this

New York
CNN Business
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Progressives and conservatives talk about President Joe Biden’s plan to erase billions of dollars in student debt – whether it’s half a loaf to an overburdened middle class or a huge socialist handout to the rich, depending on your policy.

But whatever your opinion of Biden’s motives, a couple of things seem clear. First: Alleviating up to $20,000 in student debt per borrower is a financial tourniquet that will help 43 million people who have been dragged into a complex and undeniably broken system. Second: it’s not even begin solve the problem.

Once the debt is wiped out, we are left with the harsh reality that tuition fees are out of control, with no quick fix to get them under control.

It is not breaking news that college costs have skyrocketed. A year at a private college now costs $38,070 on average; a year at a public university costs $10,740 – or much more for international students.

The economics of tuition fees are complicated and vary from institution to institution. Some states, like Louisiana and Arizona, pulled money from their own public higher education systems, forcing colleges to raise tuition and letting federal loans fill the gap. But not all states, says Kevin Carey, vice president of education policy at the New America think tank. In some cases, tuition fees have increased in line with inflation and population growth.

What drives tuition inflation has more to do with the scale of the higher education system. The United States has a massive decentralized system of hundreds of nonprofit colleges, where the national government does not control prices. The country also has a large upper middle class that is willing to pay top dollar for their children’s education.

Each of these institutions is in competition to attract talent. And for funding.

Put simply: “There’s nothing in the system that drives prices down,” says Carey. “Everything pushes them up.”

That’s why some critics of the Biden administration’s student debt relief worry about the precedent it sets. If the government creates an expectation that debts are likely to be forgiven, universities will not hesitate to raise tuition fees. Students may take on more debt, expecting some to be wiped out eventually.

Bottom line, debt cancellation certainly does not lower tuition fees.

Some critics of the Biden plan have suggested that a better solution would be to treat student loan debt like any other consumer debt: let the bankruptcy courts deal with it.

Right now, it’s not impossible to offload student loan debt via bankruptcy, but it’s a lot harder than, say, credit card debt.

“The typical American can go to court, declare themselves insolvent, hand over some remaining assets, default on their remaining debts, and return home to a home exempt from the process,” wrote Oren Cass, executive director of the conservative think tank. American Compass, in an opinion essay for Politico. “This is the option that should be available to all student loan holders.”

While it’s not a simple or painless solution – bankruptcy has very real financial consequences and social stigma that make it a last resort – Cass says the cost is low enough to “ensure that someone who has really need a fresh start can get one, but high enough that most who can avoid it will do what they can to stay away.

For better or for worse, the bachelor’s degree remains deeply embedded in the corporate hiring process. And over the past few decades, many fields such as nursing have evolved to require a host of additional certifications that require additional training (and, of course, more student loans).

The bachelor’s degree has become the new norm, says Carey. “And then there are all those post-baccalaureate degrees, diplomas and certifications – all controlled by colleges…and paid for by loans.”

Another flaw in Biden’s plan that critics point to is the lack of clarity regarding future loan forgiveness. If you just graduated with debt and are making less than $125,000 a year, congratulations, you now have $10,000 less. But younger generations whose student loans were taken out after the July 2022 deadline may be out of luck.

“The class of 27 is literally entering college right now,” says Carey. “They’re not getting any loan relief. I think people are going to start raising their hands and saying, ‘wait, what?’