Student-Loan Forgiveness Raises a Question About College

Much public support for President Biden’s student-loan forgiveness plan rests on the same faulty logic. Just because some will benefit from a four-year degree in pay and choice of jobs, it doesn’t follow that everyone will. Yes, the student-debt problem stems from the dramatic rise in college costs in recent decades. But it’s also a function of too many young people who have little to gain from four more years of classroom instruction being tempted to take out loans and attend college anyway.

Tuition is about 20% of the total cost of attending college, and increases in tuition subsidies track closely with colleges raising their prices. In addition to being legally dubious and economically reckless, Mr. Biden’s debt-cancellation plan will create incentives for schools and potential borrowers alike to act in ways that exacerbate the problem. But the worst part might be that it will also encourage more young people to make poor decisions about their future.

The college-for-all advocates note that degree-holders tend to earn more, but as the economist

Richard Vedder

explains in his 2019 book on higher education, “Restoring the Promise,” first you must graduate, and 40% of the people who attend college don’t finish. Moreover, “college graduates with poor academic performance, graduating in the bottom quartile of their class, earn roughly the same after graduation as high school graduates.” These former college students must then pay back student debt with earnings equivalent to those of someone with only a high-school diploma.

Financial-assistance programs are primarily intended to help the poor, but the percentage of poor people graduating from college has dipped even as tuition assistance has increased. According to Mr. Vedder, about 12% of recent college graduates came from the bottom 25% of the income distribution in 1970. Today, it’s about 10%. Financial aid too often enables people with little chance of graduating to attend college anyway—only later to regret it.

As a policy matter, the objective shouldn’t be to funnel as many high-school grads as possible into college. Rather, it should be to make college available to anyone who has something meaningful to gain from the experience. The underemployment of college graduates is a problem that has been steadily worsening as the number of graduates has increased faster than the number of jobs requiring a bachelor’s degree. In 2020, 4 out of 10 recent college graduates were working in jobs that didn’t require a college degree.

All this suggests that colleges and financial-aid programs ought to be more discriminating, yet progressives are calling for less-rigorous student vetting. Loan forgiveness and attacks on admissions tests move us in the opposite direction. There’s nothing wrong in principle with colleges wanting to broaden the racial and economic backgrounds from which students are drawn, but it’s a goal that should be pursued without lowering standards or saddling dropouts with oppressive debt.

If Mr. Biden were serious about addressing the student-loan problem, he wouldn’t push to forgive debts at taxpayer expense. He would instead call for the privatization of student lending. And he would support legislation to require that colleges have skin in the game by paying some portion of the loans for borrowers who default. Auto manufacturers set up their own finance companies to help consumers pay for cars. Why can’t colleges and universities do the same thing for potential students?

None of this is on the table because the president isn’t really interested in reforms that would address the underlying causes of high tuition bills. He’s far more interested in finding an issue for his fellow Democrats to campaign on in November. Student-loan forgiveness is an obvious election-year gambit aimed at turning out younger voters who might otherwise stay home, and the Journal reported Tuesday that it could cost as much as $1 trillion.

We’ll find out in due course if it pays off politically for Democrats, but we already know it’s a raw deal in economic terms for millions of Americans who never went to college or who chose a less-prestigious school to avoid accruing lots of debt. And it makes suckers out of those people who took out loans and made sacrifices to pay them off.