NRPLUS MEMBER ARTICLE T hroughout this election cycle, progressives have pushed for a two-part solution to the so-called student-debt crisis — and Joe Biden is now on board with their aims.
Biden has called for forgiving student debt — at least $10,000 per borrower — and endorsed Senator Bernie Sanders’s original plan to make public colleges and universities free for families earning below $125,000 a year. Student-debt forgiveness is supposed to atone for past policy sins while free college is supposed to avoid future ones. Here is how Senator Elizabeth Warren describes the two-pronged approach:
Once we’ve cleared out the debt that’s holding down an entire generation of Americans, we must ensure that we never have another student debt crisis again. We can do that by recognizing that a public college education is like a public K-12 education—a basic public good that should be available to everyone with free tuition and zero debt at graduation.
These arguments for free college are, it may not shock you to learn, wildly overstated. In a new American Enterprise Institute report, we show that tuition for in-state undergraduates at public colleges and universities accounts for only a small share of student borrowing, no more than 15 percent of all federal loans. If tuition at public colleges plays such a minor role in the supposed debt crisis, how can free-college policies such as those proposed by Senators Sanders and Warren, and now by Biden, prevent another such crisis? They can’t. Which means progressives will be back for more grant aid, more price controls, and more loan forgiveness soon after their policy is adopted.
Free college has a minimal impact on borrowing because the students it targets aren’t doing much of the borrowing. It’s the students who don’t qualify for free college who are borrowing the most. Graduate students, for example, account for 43 percent of new borrowing. Another group not covered — undergraduates attending private colleges or public schools outside their home states — are responsible for an additional 30 percent.
Just 27 percent of student loans issued annually go to in-state students attending public institutions who would be eligible for the progressive free-college plans. Yet much of that debt doesn’t go toward tuition, because the tuition prices that students pay at public universities are much lower than free-college advocates assume.
The most recent data from the U.S. Department of Education show that after all financial aid, full-time students at in-state four-year universities who come from low- and middle-income families — a group Biden would grant free tuition — pay about $2,600 on average for a year of tuition and fees. At two-year colleges, they pay a fraction of that amount. Given those tuition prices, free college will have only a modest impact on new student borrowing every year.
Much of student borrowing at public higher-education institutions actually finances living expenses, not tuition. And such borrowing is likely to continue even after tuition is free. To be sure, the type of free-college policy that progressives advocate would supplant some of the borrowing for living expenses by converting the federal Pell Grant into a stipend to pay for the same expenses; states couldn’t use it to meet the free-tuition requirement. But even when we account for that feature, the overall reduction in student borrowing due to a Biden-style free-college plan would still be no more than 15 percent.
Note also that Biden and other free-college supporters have no plans to shut down the federal government’s massive student-loan program going forward. Even with a free-college policy on the books, we expect that the government would issue over $1 trillion in new student loans over the next ten years. Within just 14 years of the free-college policies’ taking effect, Uncle Sam will have disbursed $1.5 trillion in new loans — the equivalent of the outstanding student debt today that so many advocates of loan forgiveness have deemed a crisis.
Will progressives seek to expand free college with the aim of eliminating the other 85 percent of student borrowing? Maybe. But it would be a hard sell, politically and fiscally speaking. They would have to fully subsidize tuition and living expenses for undergraduates at all private colleges, not to mention students in all types of graduate programs.
Absent a serious reduction in the size and scope of the federal student-loan program, then, advocates of debt forgiveness and free college need to admit that outstanding student debt will soon climb back to “crisis” levels. Free college will not solve this perceived “crisis.” It will only kick the can down the road. Debt forgiveness, meanwhile, might even accelerate the growth of student debt: If the federal government has established a precedent of full or partial student-loan forgiveness, borrowers may come to expect that more loan forgiveness will be in the offing once total outstanding debt climbs too high, and indulge in more irresponsible borrowing.
All of which is to say that free college and loan forgiveness will almost certainly cost far more — and accomplish far less — than their supporters claim.
Jason D. Delisle is a resident fellow at the American Enterprise Institute. Preston Cooper is a visiting fellow at the Foundation for Research on Equal Opportunity.