Over the past ten years, the cost of undergraduate college tuition has increased by about 30% at public colleges and universities and just over 25 % at private institutions. During this same period, student loan debt increased by 107% to nearly $1.7 billion. The amount of total dollar debt held by students who enrolled in a college gains big headlines, usually with a statement comparing it to credit card debt.
What is not talked about is why public college costs increased as state support declined. In addition, colleges spent money on staff to meet federal and state compliance requirements, improve facilities and add programs to attract students during a demographic decline, meet increasing competition, and discount tuition to supplement financial aid funding.
So, yes, college prices increased, and students and families borrowed money to pay the bills. But who borrowed? Nearly 45 million Americans have outstanding student debt. Who holds the most debt?
The government limits federal borrowing by undergrads to $31,000. Two-thirds of students at public colleges graduated with an average of $26,900 in loan debt. Some 68% of private college graduates had average debt of $31,450. More extreme, propriety college students left with an average of $40,000 in debt. Only 7% of borrowers owe more than $100,000. They owe about one-third of all student debt and a large proportion of this is for graduate education, especially law and medicine.
Most undergrads finish college with little or modest debt: about 30% graduate with no debt and more than one-half of borrowers owe $20,000 or less. About one-third owe less than $10,000, but many of these students left college without a degree.
The majority of student loan debt in terms of dollars is held by households with higher earnings and a graduate degree. For example, the highest-income 40% of households (those with incomes above $74,000) owe almost 60% of student loan debt. These borrowers make almost three-quarters of student loan payments. The lowest-income 40% of households hold just under 20% of student loans and make only 10% of the payments.
The Biden Plan targeted the large number of borrowers with relatively low amounts of debt, no degree, and therefore more difficulty in finding a job to help pay the debt.
These are not students who attended posh campuses. One-half of debtors attended public two-year and four-year colleges, more than the number who attended private and for-profit colleges combined. They are those who dropped out of local colleges or predatory for-profit career schools with no proven job placement records. These students were poorly advised about the schools and the debt, and the schools and the government took advantage of them.
When I asked a federal official at a meeting of college presidents why the interest rate on federal student loans was higher than the commercial rates for home mortgages, and why they charged interest on the interest payments, he said the government was using the money to pay down the federal deficit! About 25% of all debt is debt accumulated on interest.
These students deserve the Biden “break”.
But the Biden Plan does not go far enough. First, there should be more support for college and financial counseling for students at under-resourced public schools. Second, there should be funding to strengthen community colleges, the bedrock of public higher education opportunity and the principal launch pads toward a middle-class life. The states and counties responsible for community colleges should do more to ensure that transfer agreements between the two-year schools and four-year colleges are seamless.
Third, the federal government should use a form of “clawback” provision, as used in the Bernie Madoff ponzi scheme case, to seize profits and compensation from the owners and executives of predatory for-profit schools and colleges to cover the cost of loan forgiveness. Many of these so-called “colleges” have closed, but the ill-gained money can be traced.
Fourth, student loan debt should be eligible for bankruptcy protection, just as every other form of debt is covered. Federal and private student loans for educational purposes face an unusually high burden for discharge and this should be changed. Amending the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act would be a way of reducing the debt without incurring the current costs of forgiveness.
Fifth, the Biden Plan should address the problems in the federal administration of the income contingent reimbursement program and the Teacher Loan Forgiveness program. Both have been mismanaged.
Sixth, the Biden Plan provided an opportunity to advance a policy objective concerning college graduation rates, especially for low-income and minority group students. It is a scandal that only 60% of four-year college students graduate after six years. One million students drop out of college each year, of which three-quarters are first-generation students, two-thirds are from low-income households, and one-half were in associate degree programs. Many of these students took out loans for college expenses and will not have the income to repay the loans. They deserved better advice.
Imagine if institutional eligibility for government aid was based, at least in part, on predicted and actual graduation rates. Colleges would be more accountable for the students they admit, the academic and other support services they provide to foster student success, and their retention and graduation rates, especially of students who enrolled with the assistance of federal student loans. They also should be held to account for their cost structures by boards of trustees, accrediting agencies, and both state and federal student aid programs.
The Biden Plan is a good start because it focuses on those most in need. Biden Plan 2.0 should focus on the policy concerns about costs and loan administration detailed above.
Robert A. Scott, Ph.D is president emeritus, Adelphi University, and author,
“How University Boards Work,” Johns Hopkins University Press, 2018; Eric Hoffer Book Awardee, 2019