American Students Don't Need the Federal Government to Pay for Their Grad School
Despite 70 percent of jobs in the US economy requiring a high school education or less according to the Occupational Requirements Survey, heated discussions of President Biden’s proposed cancellation of a significant portion of the nearly $1.6 trillion federal student debt currently outstanding continue. A strong case has been made that such action would be a usurpation of the authority of Congress to set government spending. Debt cancellation would be grossly unfair to past and current students, and their families, who have sacrificed by saving and working hard to pay for college — without taking loans — and to those who have paid off their loans.
It would also be unfair to those who never went to college who, as taxpayers, would be saddled with the higher taxes needed in the future to pay for the increase in federal deficits and debt that would replace the student loans on the government balance sheet. It has also been proven that such debt cancellation — particularly covering loans for graduate school education — would be a regressive policy largely benefiting higher income individuals and households. In addition, a slew of persuasive analyses demonstrate that the existence of generous federal student loan and grant programs has caused most of the rapid inflation in tuitions over the last decades. In 2019, the average annual tuition, fees and room and board for a four-year college was $25,300. Subtracting out consumer price inflation, this represents a real increase of 88 percent over the last thirty years or so.
It is easy to say that the Biden administration’s bad policy move of passing government resources freely to favored and supportive groups, such as the higher education sector and younger professionals living on the coasts, is motivated entirely by politics in the face of a competitive upcoming election. But delinquency rates had increased prior to the recent pause on student loan repayments. So, let’s consider the possibility that an increasing number of individuals are struggling with student loans, that the promised higher incomes from expensive college and graduate educations are not materializing sufficiently enough to make large student loan payments manageable, and that the current complex income-related repayment features for loans, even with accelerated forgiveness for government workers, are not working well.
There is empirical evidence that a great imbalance has developed between the need of employers for workers with college and advanced degrees, and the number of workers with those levels of education. The Occupational Requirements Survey, cited above, is a survey of large and small employers in the private and state and local government sectors. Conducted by the Bureau of Labor Statistics and funded by the Social Security Administration for use in the vocational aspect of its disability determinations, it reveals that, in 2021, seven percent of jobs needed an associates’ degree, 19 percent needed a bachelor’s degree, 2.6 percent required a master’s degree, 1.5 percent required a professional degree, and 0.7 percent required a doctorate. According to the Current Population Survey (CPS), in 2021, more than 10 percent of American workers had an associate’s degree, 25 percent a bachelor’s degree, 11 percent a master’s degree, two percent a doctorate, and 1.6 percent a professional degree. In the last thirty years, these percentages of higher education attainment have increased rapidly. For example, the percentage of workers with bachelor’s degrees has jumped from 15.6 to 25.4 percent, master’s degrees doubled from 5.5 to 10.9 percent of the workforce, while the number of Americans holding doctorates has more than doubled from 0.9 to 2.2 percent of all workers. Furthermore, over the last thirty years according to CPS data, the earnings premium from a master’s degree, compared to a bachelor’s degree, has declined from a ratio of about 1.24 to 1.17, while the earnings premiums for other educational levels have remained steady even as education costs have risen rapidly.
Given this imbalance, there may be some policy logic for a carefully targeted and limited reduction (not cancellation) of outstanding student loans, but such a move must come through legislation — not executive order. And the continually expanding federal student loan program must be massively reformed and cut back if such a reduction is not to be repeated, and the higher education sector not to continue to inflate tuition and grant degrees without sufficient value.
At the maximum, I suggest federal loans of modest amounts to cover the costs of education (subtracting any grants) at public community and four-year colleges for associates and bachelor’s degrees only. Advanced degrees that reliably produce higher incomes can surely be financed through private loans. Perhaps, this will encourage the next Gates, Zuckerberg, Bezos, Dell, and Musk, who have benefitted society (and themselves) through their hard work, innovation, and creative spirits, instead of spending time in school to pursue advanced degrees at a prime time of their lives.
Mark J. Warshawsky is a senior fellow at the American Enterprise Institute. He previously served as a senior official at the Social Security Administration.
