If there’s anything fans and foes of President Joe Biden’s student loan forgiveness initiative can agree on, it’s that it doesn’t do anything to address the real issue: the ever-rising cost of college and attendant accumulation of debt.
They’re right, of course. What most people seem not to have noticed, however, is that the situation is actually improving. According to data released by the College Board in February, net tuition for in-state students at four-year public universities peaked in 2013 — and has been gradually declining since.
It’s true that headline tuition (the “sticker price”) at these schools remains higher than it was a decade ago. But this reflects price-discrimination practices, not out-of-control growth in underlying costs.
Schools charge high tuition to rich families and then offer grants and scholarships to most families. Net tuition has been falling because grants have been rising faster than sticker-price tuition. That in turn has contributed to a fall in student loan debt. “After rapid growth in annual borrowing between 2005-06 and 2010-2011,” the College Board report says, “total federal loans to undergraduate students declined by 46 percent between 2010-11 and 2020-21.”
In other words, the Biden administration doesn’t necessarily need to take action against ever-escalating tuition costs and ever-growing debt — because those problems actually peaked long before he took office.
To understand what went wrong, it’s necessary to consider the plight of students who left school a few years after I graduated in 2003. The U.S. economy stumbled badly in 2007, then entered a very sharp contraction in the winter of 2008-2009.
In response, the Federal Reserve set interest rates to zero but was reluctant to engage in unorthodox monetary policy initiatives to provide further boosts to growth. The federal government enacted a fiscal stimulus that, though large, was far too small to fully close the output gap. National political elites then turned their attention to reducing the deficit.
One result was a lackluster labor market recovery, which boosted student debt across multiple margins.
For starters, lots of people who might not have been enthusiastic about going to college or graduate school did so, simply for lack of viable other options. At the same time, plunging tax revenues and nonexistent federal support pushed states to cut higher education funding. Forced to make difficult choices, state legislatures decided, plausibly, that higher net tuition was the least-bad option in a world where students could at least bridge the gap with loans. Last but not least, once millennials left school and got jobs, they were frequently underemployed, at least according to their educational credentials, and struggled to make payments.
The situation was especially bad for those who were tempted by all of these factors to start degree programs that — for reasons of temperament, ability or happenstance — they never actually finished.
This was a tragic situation, and it continued for long enough that people can be forgiven for thinking that it would last indefinitely. But it didn’t.
The labor market steadily improved during former President Barack Obama’s second term and continued to do so through the pandemic. During COVID-19, the federal government actually did provide generous fiscal support to the economy, and the labor market bounced back quickly.
The Biden administration’s very aggressive stimulus had some downsides. But its signature accomplishment is an economy in which a reasonably diligent young person does not have much trouble finding gainful employment. Colleges need to compete with these superior outside options, and financial aid is now more generous. The result is that net tuition is falling.
The stereotype of colleges churning out graduates with useless liberal arts degrees that qualify them only for barista jobs is also outdated. The latest data from the National Center on 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 growing fast.
In other words, the system is healing. Fewer people are going to college, and those who do go are paying less and gaining more marketable knowledge and skills.
It’s true that, from a policy standpoint, the targeting of Biden’s debt forgiveness program is extremely crude. It will help some who don’t particularly need help, while excluding large numbers of people who graduated into the same bleak economy without benefit of a college education.
But to understand the program’s appeal, it helps to think of it as a form of reparations. It’s a payment to a generation whose lives were derailed by bad fiscal and monetary policy choices 15 years ago. And while it’s impossible to undo the harms of the policy errors of the past, it is possible to learn from them.
High sticker-price tuition is fine — if schools can come up with scholarship money to make the price manageable for working-class students. But withdrawing that help in the middle of a recession so that students can burden themselves with excessive personal debt is harmful and pointless. Meanwhile, college itself can be a tremendous engine of opportunity and economic mobility — if options in the labor market are good enough to make schools actually compete for students and to provide new graduates with an opportunity to put their degrees to use.
Agree or disagree with Biden’s approach, reasonable people ought to be able to see that the U.S. failed its young people 15 years ago. The putative benefits of focusing on long-term reforms such as deficit reduction, rather than providing the “sugar” of more stimulus, never materialized. Thankfully, the U.S. did better during the pandemic. It should resolve to maintain that spirit during future recessions.
