The Problems of the Student Loan Program Exceed Biden's Forgiveness Plan
The Supreme Court has now heard the challenge to President Biden’s forgiveness of almost half a trillion dollars in student loans. Whatever the decision, this may be a time for Congress to look more closely at the student loan program itself, initiated in 1992, and one of the most important sources of funding for higher education.
Although it makes sense to assist needy students with low-cost government loans, the student loan program is a government subsidy like any other. As such, it should be regularly reviewed by Congress for it effects, good and bad. Although student loans have undoubtedly made higher education more accessible to more Americans, it has also enabled colleges and universities to increase tuitions faster than the rate of inflation, stimulated a sharp growth in college non-educational bureaucracies, and failed to erase or adjust the wide imbalance in the political perspectives of tenured faculty. Since all Americans are taxed for this program, it should not favor only one political group.
The Student Loan Forgiveness Tracker, run by my AEI colleague Nat Malkus, shows that student loan debt has now reached $1.2 trillion, making it the largest element of consumer debt after housing. The losses to the Treasury, largely from the so-called “pandemic pause” on loan interest accrual and repayment — a different program from the forgiveness plan — has reached $200 billion, bringing the US that much closer to the point of potential default under the US debt limit sometime this spring or summer.
The Biden plan would forgive up to $20,000 in student debt for borrowers earning less than $125,000, and has been estimated by the Penn Wharton Budget Model to cost the taxpayers $605 billion over 10 years. Biden has also proposed an income-driven repayment system which Penn Wharton estimates at about $333 billion. If that goes into effect, it will bring the total Biden policy changes to a cost that exceeds $1 trillion.
Since the student loan program has been in effect, colleges and universities have been able to increase their tuitions 4.6 times faster than the rate of inflation, going from $1,410 annually in the early 1970s to $39,500 in 2022. At Harvard, tuition and room and board for 2023 is $76,763. Thus, a program to aid students has become yet another way for the government to subsidize colleges and universities. It’s unlikely that Congress had this objective in mind when it approved this program in 1992..
Increased funding has also subsidized substantial growth in an administrative bureaucracy at colleges and universities. There are now as many administrative staff at Yale as there are undergraduates. At MIT, the Vice President and Dean for Student Life — only one of several major administrative groups — has 52 separate offices under her jurisdiction. In addition, many college administrators oversee and push programs that feature diversity, equity and inclusion — politics instead of academics.
The funds derived from student loans have also increased faculty salaries but has not induced the faculties at colleges and universities to be more even-handed in granting tenure to colleagues who don’t agree with their prevailing left-wing views. As Jon Shields and Joshua Dunn write in their book, Passing on the Right, “Progressives rule higher education. Their rule is not absolute. But conservatives are scarcer in academia than in just about any other major profession, including the entertainment industry…Conservatives are so scarce, in fact, that Marxists outnumber them.” In other words, US taxpayers are making it possible for colleges and universities to compete financially for Progressive faculty members as well as woke administrators.
Finally, Congress should consider the personal conduct standards that schools are inculcating in their students. Free speech on many campuses has been attenuated in exactly the places where it should thrive. When conservatives are invited to speak, they frequently need guards to keep unruly students at bay, and the speaker is often shouted down. Virulent Anti-Semitism, is rising fast on campuses, according to media reports, with Jewish students denied membership in campus organizations or made to feel unwelcome at campus meetings. The institutions that are the beneficiaries of taxpayer-provided student loans should take more responsibility for assuring free expression and free association on campus.
When a program like the government’s student loan system is supported by the taxes of millions of Americans, more should be expected from the colleges and universities that are also the program’s beneficiaries.
Peter J. Wallison is a senior fellow emeritus at the American Enterprise Institute. His most recent book is “Judicial Fortitude: The Last Chance to Rein in the Administrative State.”
