If there’s one thing fans and haters of President Joe Biden’s student loan forgiveness initiative can agree on, it’s that it does nothing to address the real problem: cost. ever-increasing college education and the resulting accumulation of debt.
Tuition fees are too high, but they are not really increasing
It is true that tuition fees (the “sticker price”) at these schools are still higher than ten years ago. But this reflects price discrimination practices, not runaway growth in underlying costs.
Schools charge high tuition for wealthy families and then offer grants and scholarships to most families. Net tuition has decreased because scholarships have increased faster than target price tuition. This in turn contributed to a decline in student loan debt. “After rapid growth in annual borrowing between 2005-06 and 2010-2011,” the College Board report states, “total federal undergraduate student loans fell 46% between 2010-11 and 2020-21.” .
In other words, the Biden administration doesn’t necessarily need to take action against ever-rising tuition fees and ever-growing debt — because those problems actually peaked long before he took office.
To understand what went wrong, consider the fate of the students who left school a few years after I graduated in 2003. the winter of 2008-2009.
In response, the Federal Reserve set interest rates at zero but proved reluctant to engage in unorthodox monetary policy initiatives to further stimulate growth. The federal government enacted a fiscal stimulus that, while significant, was far too modest to fully close the output gap. National political elites then turned to deficit reduction.
One of the results has been a lackluster recovery in the labor market, which has inflated student debt on several margins.
For starters, many people who may not have been keen on going to college or college did so, simply for lack of other viable options. At the same time, falling tax revenues and a lack of federal support have pushed states to cut funding for higher education. Forced to make tough choices, state legislatures plausibly decided that higher net tuition was the least bad option in a world where students could at least fill the gap with loans. Last but not least, once millennials left school and got jobs, they were often underemployed, at least according to their credentials, and struggled to make payments.
The situation was particularly bad for those who were tempted by all of these factors to start degree programs that they never completed due to temperament, ability, or chance.
It was a tragic situation, and it lasted long enough that people could be forgiven for thinking it would go on forever. But that was not the case.
The labor market steadily improved during former President Barack Obama’s second term and continued to do so during the pandemic. During Covid-19, the federal government actually provided generous fiscal support to the economy, and the job market rebounded quickly.
The Biden administration’s very aggressive stimulus has had some downsides. But his star achievement is an economy in which a reasonably diligent young person has little trouble finding gainful employment. Colleges must compete with these superior outside options, and financial aid is now more generous. The result is that net tuition is down.
The stereotype of colleges producing graduates with useless liberal arts degrees that only qualify them for barista jobs is also outdated. The latest data from the National Center for Education Statistics shows that majors such as English, arts management, anthropology and gender studies are becoming less popular. In their place, more practical subjects – computer science, aeronautics and nursing – are developing rapidly.
In other words, the system heals. Fewer people go to college, and those who go pay less and gain more knowledge and marketable skills.
It is true that, from a political point of view, the targeting of Biden’s debt cancellation program is extremely crude. This will help those who don’t particularly need help, while excluding a large number of people who graduated in the same dark economy without the benefit of a university education.
But to understand the program’s appeal, it helps to think of it as a form of reparation. It is a payment to a generation whose life was derailed by poor fiscal and monetary policy choices 15 years ago. And while it is impossible to undo the harm done by past policy mistakes, it is possible to learn from them.
High tuition is okay – if schools can find scholarships to make the price manageable for working-class students. But withdrawing this aid in the midst of a recession so that students can burden themselves with excessive personal debt is harmful and unnecessary. Meanwhile, the university itself can be a tremendous driver of opportunity and economic mobility – if the options in the labor market are good enough for schools to really compete for students and to offer new graduates the opportunity to put their degrees to good use.
Whether or not you agree with Biden’s approach, reasonable people should be able to see that the United States failed its youth 15 years ago. The supposed benefits of focusing on long-term reforms such as deficit reduction, rather than providing the “sugar” for more stimulus, never materialized. Fortunately, the United States has done better during the pandemic. He should resolve to maintain this spirit in future recessions.
More from Bloomberg Opinion:
• Forgiving student debt is a bad idea – Just ask India: Mihir Sharma
• Biden’s student loan plan fails older borrowers: Alexis Leondis
• Biden’s debt relief plan will worsen US politics: Clive Crook
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Matthew Yglesias is a columnist for Bloomberg Opinion. Co-founder and former columnist of Vox, he writes the Slow Boring blog and newsletter. He is the author, most recently, of “One Billion Americans”.
More stories like this are available at bloomberg.com/opinion