by Nathan Warf

This past Wednesday, August 24, President Biden extended, yet again, the moratorium on federal student loan payments. Much more significantly, he announced a plan to forgive up to $10,000 in student loans for individuals making less than $125,000 a year and up to $20,000 for Pell Grant recipients. Obviously, some people are happy; over 40 million Americans should benefit. Nonetheless, I oppose the plan. I realize that position might make me seem out-of-touch with the plight faced by many Americans, so give me a moment to explain.

First, I question the legality of the executive order. The expansion of the administrative state isn’t new. The federal government has been involved in student loans for decades. Presidents of both parties have long used executive orders to bypass Congress in expansive ways. President Biden’s plan will, no doubt, face legal challenges. Does he have the authority to unilaterally wipe away debt for millions of Americans? Legal scholars are split. Conveniently, the question will not be resolved before midterm elections.

Second, the aid isn’t targeted to help people who need it most. Less than 40% of Americans over the age of 25 hold a bachelor’s degree. Of those who don’t have a degree, the two leading reasons they give are 1) they couldn’t afford a four-year degree, and 2) they needed to work to support a family. Moreover, those with a bachelor’s degree, on average, will earn approximately $1.2m more over their careers than those with a high school diploma. The loan forgiveness plan does nothing to help those who never attended college, nothing for those who did not take out student loans, and nothing for students who have already paid their student loans. While many would benefit from debt forgiveness, they might not be the Americans who are hurting most.

Third, the plan will do nothing to help with inflation. As Investopedia says, inflation is the general increase in the price of goods and services over time, “which can be translated as a decline in purchasing power.” The U.S. aims to keep inflation steady at around 2% a year. However, the U.S. has hit at least 5% every month since June 2021. It’s the highest rate since the early 1980s. There are several reasons for high inflation. Government spending is significant. Putting money in the hands of consumers can help many families, but it also contributes to an overheated economy. As a response to the pandemic, the federal government issued direct payments of nearly $1 trillion to Americans. The student loan payment moratorium, which has been in place since March 2020, has cost the government roughly $4.3 billion per month. Many economists expect loan forgiveness to exacerbate the problem. The Wall Street Journal Editorial Board called President Biden’s order an “inflation expansion act.”

If all of this wasn’t enough, my primary reason for opposing the plan is that it’s a band-aid. It does nothing to address the real problem, which is the skyrocketing cost of a college education. That problem is complicated.

Adjusted for inflation, the cost to attend a four-year college increased by 180% from 1980 to 2020. Preston Cooper writes in Forbes that “tuition has increased in price more than any other good or service besides hospital care.” Why?

One explanation is the demand for a college education. In the competition to enroll students, some universities are getting creative in ways that might ultimately be counterproductive: extending dual enrollment to an ever-younger population, expanding inexpensive online programs, and admitting students who are ill-prepared for college. All these methods come with costs. The more college credits a student earns in high school, the less likely they will stay enrolled at a university for a full four years. Unprepared college students are less likely to finish, meaning they have student loan debt and no degree. Those who do stick around often require remedial courses and/or additional support services, which increase a university’s expenses.

Meanwhile, lower academic standards lead to higher graduation rates. The market is then flooded with college graduates who may or may not be prepared for the workforce. To distinguish themselves, many individuals may feel pressure to pick up a graduate degree, which only adds to loan debt. University competition for these students is intense. Eastern University advertises an MBA for only $9,900! Southern Utah University says “No GMAT required”! You can earn your accelerated online MBA from Spring Hill College in as little as ten months! (All of these are random examples from a simple Google search.) More education often results in more debt.

Salaries for university employees are also increasing the cost of college. Don’t blame professors. First, I’m a professor, and I don’t want to be blamed. More importantly, faculty aren’t the real problem here. Average salaries for full-time faculty have been relatively stagnant for decades. At the same time, many universities rely heavily on far less expensive “contingent faculty”: adjuncts, non-tenure track faculty, and graduate students. Increasing salary expenses are not going primarily to instructors; they’re going to student services and administrators.

When discussing college costs, decadent student amenities are frequently brought up. My alma mater, Baylor University, boasts a 53-foot rock climbing wall in its student center (21 feet taller than UT Knoxville’s). The University of Alabama is among the growing number of college campuses with a lazy river and splash pad. Simmons Hall, a dormitory at MIT, has a two-story theater and a giant ball pit. All this costs money, money colleges are willing to spend to attract students in a very competitive market.

The truth is that universities are far more than simple institutions of higher learning. They are miniature cities with complex economies. Many spend millions of dollars on coaches and athletic facilities. They hire medical professionals to care for the physical and mental health of students. Universities hire security personnel or even have their own police and fire departments. They employ an army to maintain their immaculate grounds and facilities. There are employees in the dining halls and the mail rooms. There are bus drivers, HR specialists, IT staff, administrative assistants, and assessment coordinators. Don’t get me wrong. I’m not saying that all these things are unnecessary or unimportant; in fact, many are essential. I am saying that the dramatic growth in non-instructional spending is affecting a student’s bottom line.

High school students are often pressured to attend college. They’re told that it’s a ticket to mobility and their share of the American dream. They have only vague impressions about the likely return on their investment (both monetary and otherwise). They find easily available loans that defer the costs of their education to some vague future. The circumstances aren’t conducive to informed decision-making.

President Biden’s loan forgiveness plan affects the nation’s bottom line. It is anticipated to cost over $300 billion, distributing benefits primarily to households above the national median. Campaign promise or not, it’s misguided.