President Biden’s student loan forgiveness announcement resulted in uproar across the political spectrum, but there’s good reason to expect even more radical higher education moves from the administration. In recent months, Biden’s Department of Education has proposed rules that make it far easier for borrowers to claim that their college harmed them and have their loans completely forgiven, a move with unpredictable consequences. Even more significant, however, will be Biden’s independent action to transfer many billions of dollars more from borrowers to taxpayers and supercharge the bad incentives that have made college unaffordable and the middle class inaccessible.
When the federal government took over student lending in 2010, it projected that doing so would net taxpayers $58 billion over 10 years, freeing the government to partially fund ObamaCare and other expenses. At the same time, the federal government revised repayment rules to allow borrowers to pay 10 percent of their discretionary income over 20 years, instead of 15 percent over 25 years; any remaining debt would be forgiven. This, along with subsequent steps by the Obama administration, made loan repayment much more generous. As a result, Congress had to revise budgetary estimates by hundreds of billions of dollars, and the federal government now actually loses money on the average student loan.
The Biden administration wants to double down — again without Congress — and allow students to pay only 5 percent of discretionary income (a term they will redefine) and grant many students total loan forgiveness after just 10 years. Biden’s plan, if it goes through, will encourage students to borrow more. That’s nothing compared to the impact that altered repayment programs will have in emboldening colleges to overcharge and students to over-borrow, particularly given that students can borrow for living expenses, not just tuition and textbooks.
If you’re a student, why live frugally, choose an affordable college, or work your way through school when, no matter how much you borrow, your payments will be capped relative to your income and the rest will be forgiven? If you’re a college, why not raise your costs to the maximum that students can borrow? And if you are a graduate school … well, the sky’s the limit because borrowing is uncapped but maximum payments still are.
As always, all of these costs will be backstopped by taxpayers, not colleges, regardless of the quality of education they deliver. Given these incentives, we can expect in the coming years to see college become less affordable, borrowing to become more irresponsible, and college programs to become more unmoored from what employers are hoping to see from graduates. None of this is sustainable, so how can we fix it?
Colleges must be required to bet on their own programs and students by co-signing their students’ loans, rather than requiring taxpayers to do so. Colleges could manage their financial risk by keeping tuition and borrowing low, making curricula relevant to the workplace, and supporting students after they graduate.
This would help fix traditional colleges, but traditional colleges maintain a monopoly over entry into the middle class and that needs to change, too. When students enter college, 58 percent say their goal is to get a job, while only 23 percent say their goal is to “learn more.” If employment is the primary goal, employers should have more direction over education and training so that they can better fund programs that provide the best results at the best price. Such empowerment can also incentivize employers to remove college degree requirements from their job descriptions and find talent in more diverse places. Some fear that this would damage the liberal arts, but many employers value those programs, too, and could signal for the ones that offer a genuinely well-rounded curriculum focused on civilization’s accrued wisdom.
We must help those who are truly struggling because of student loan debt, but without a trillion-dollar giveaway that probably is not legal. To start, borrowing must be capped for graduate and parent loans. And those who have done the right thing by making their payments on time for years, only to see their balances grow, need help. This can be fixed and the Biden administration, to its credit, is considering changing how interest is capitalized. Finally, in the rare cases when student loans are making borrowers destitute and truly unable to repay, bankruptcy and a fresh start must be an option.
The Biden administration’s plans for student loan forgiveness and repayment respond to legitimate concerns about college affordability and the crumbling path to the middle class. Nonetheless, if implemented, these plans will have untold negative impacts on the way the government operates and the limits of executive power. The impact on higher education will be even greater.
Fortunately, these plans are not finalized and can be reined in — or even stopped — if Congress and the public act. But merely stopping these plans does not solve the underlying problems here: We also need to offer better solutions that put us on the path to restoring the promise of higher education.
Michael Brickman is an adjunct fellow at the American Enterprise Institute, where he focuses on higher education and education reform. He concurrently advises companies, nonprofits and investors on innovations that change the way we work and learn. He previously was a senior adviser to the U.S. Under Secretary of Education, and led education policy for former Wisconsin Gov. Scott Walker.