How Colleges Will Cash In on Biden’s Student Loan Forgiveness

Academia will keep raising tuition, and students will have incentive to take out more loans

WSJ editorial. Excerpts:

"President Biden on Wednesday lamented soaring college costs to justify his sweeping student loan cancellation. Students, he feels your pain. Yet he fails to recognize that the root causes of high costs are federal-loan and student-aid subsidies.

Like other Great Society programs, federal student loans and grants were initially aimed at helping low-income Americans. They have since become another all-you-can-eat entitlement. Its costs grow on autopilot as lawmakers boost subsidies in the name of making higher education more affordable, but in reality doing the opposite. 

Undergraduates were allowed to borrow a total of $7,500 in 1973. But Congress over the years has lifted the lifetime federal loan limit, which is now $31,000 for students who are dependents and $57,500 for others. Congress in 1980 established low-interest Plus loans for parents, which were expanded to graduate students in 2006. These have no dollar cap.

Colleges have responded all too rationally by raising prices and using the free-flowing spigot to increase professors’ salaries, hire more administrators and build Club Med amenities. There’s a dean for everything these days. Since 1980 the average annual cost to attend four-year public and nonprofit colleges has increased by nine-fold to $22,690 and $51,690, respectively. 

Tuition growth in recent years has moderated as demographic factors have reduced college enrollment and increased competition. Many small liberal arts schools have closed or merged. But others have adapted by adding expensive graduate programs.

The average debt for a master’s degree recipient is $71,287; for a doctoral grad it’s $159,625. Yet the median salary for a Ph.D. is a mere $55,000 in the humanities and $67,250 in social sciences. Many teach college classes for low pay while highly compensated tenured professors do research, much of which doesn’t add to the sum of human knowledge.

Colleges have no financial incentive to ensure that their programs impart skills demanded by employers or provide a decent living. What does it matter to them if an anthropology graduate winds up working as a barista? Colleges are paid on the front end, and government is now writing off the cost on the back end.

Mr. Biden says his half-a-trillion-dollar loan cancellation is necessary to address unsustainable student debt. But the Obama repayment plans already limit monthly payments to 10% of discretionary income and forgive the remaining balances after 20 years. Borrowers who earn little can pay little or nothing. Mr. Biden’s plan will encourage students to take out more loans and colleges to keep raising tuition."

"Mr. Biden said Wednesday that his Administration is “holding colleges accountable for jacking up costs without delivering value to students.” He isn’t. He’s only targeting for-profit colleges. His proposed gainful-employment rule would cut off federal student aid to some 40% of for-profit programs whose graduates don’t meet certain earnings or debt-to-income measures. But he’s giving a pass to nonprofit and public colleges that are no saints."