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Students walk into the High Point Solutions Stadium before the start of the Rutgers University graduation ceremony in Piscataway Township, N.J., May 13, 2018.
Photo:
Seth Wenig/Associated Press
President Biden has announced a plan to forgive between $10,000 and $20,000 in federal student loans for tens of millions of borrowers. The scheme will cost more than $300 billion and benefit mostly college-educated households that don’t need the help. But its most pernicious consequence is the precedent it sets. Colleges are sure to exploit the promise of repeated cancellations by hiking tuition and opening new degree programs of questionable value.
The federal government is on track to disburse $1 trillion in new student loans over the coming decade. The Committee for a Responsible Federal Budget estimates that it will take less than a decade for the outstanding stock of student loans to climb back to its current level. Candidates in the next Democratic presidential primary will try to one-up each other with new promises of forgiveness.
Already, progressives are expressing their discontent with the supposedly moderate scope of the loan-cancellation scheme. One activist described Mr. Biden’s plans as a “bucket of ice water on a forest fire.” It’s more like a can of gasoline.
The moral-hazard effects of the decision will be profound. Students will gladly take out larger loans when colleges can credibly wink and whisper that higher tuition rates are no big deal since the loans will be forgiven anyway. To capitalize on previous expansions of federal student-loan programs, universities have added more than 9,000 new master’s degree programs over the past decade. More are sure to come, even though research shows that nearly half of master’s degrees don’t provide a positive return on investment. Taxpayers should ready themselves to subsidize more worthless degrees at higher prices.
Now that Mr. Biden has opened the debt-cancellation floodgates, reining in the federal student-loan program is the only way to stop this madness. Yet the administration has proposed no serious plan to reduce new student-loan volume, even as it argues that past loans are burdensome enough to warrant cancellation.
Should Republicans retake Congress this fall, they should put student-loan reform at the top of the agenda. Already GOP lawmakers have introduced a House bill explicitly revoking the Education Department’s ability to cancel student loans by executive fiat. The bill would also prohibit the department from forgiving more debt through modifications to repayment plans and cap new loans to graduate students at $25,000 a year.
The bill is a good start but could go further. To pop the bubble in low-quality master’s degrees, Republicans should eliminate federal loans to graduate students entirely and return the graduate-student lending market to the private sector. At the undergraduate level, Congress should make colleges financially responsible for a portion of unpaid federal loans. That would create an incentive for colleges to reduce tuition and to ensure that students find gainful employment after graduation.
Too often, Republicans have placed higher-education issues on the back burner. But Mr. Biden’s debt-cancellation order makes common-sense reform to federal student loans urgent. Without it, Mr. Biden’s loan-forgiveness announcement is only an opening bid.
Preston Cooper is a senior fellow in higher education policy at the Foundation for Research on Equal Opportunity.
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