Biden’s student debt cancellation plan won’t cut college costs, labor economist says

Beth Akers started her freshman year at Ithaca College in upstate New York. But she had qualms about the debt she would incur at this private school, so she transferred to a less expensive public school: the University of Albany, the State University of New York, or SUNY.

“And the rest, as they say, was history,” Akers said in an email. “I was much more comfortable with the financial compromise.”

Akers is a labor economics expert and resident fellow of the American Enterprise Institute, a center-right think tank in Washington. She is a critical voice on the student debt crisis and advocates for reductions in college tuition and costs, saying federal college funding should be tied to the job prospects — and salary — of graduates.

She argues that college can be a huge boon for many graduates, as degrees lead to well-paying jobs.

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“But I also believe,” she said, “that it can’t be the only path for Americans to get the skills and education they need to be able to contribute to the economy and support themselves. financial needs.”

President Joe Biden’s recent debt forgiveness has put student loans and debt at the top of the national political agenda. The plan will forgive $10,000 to $20,000 in federal student loans for people earning less than $125,000 and couples earning less than $250,000.

Debt cancellation is estimated to cost the US government hundreds of billions of dollars. Proponents praise the plan as relieving some — or all — of the debt of some federal student loan borrowers. A request for debt cancellation is expected to be posted on the Ministry of Education website by mid-October.

Final rules on the plan have not been released and some believe it could be challenged in court.

Akers told The Inquirer she doesn’t think the plan is fair and it doesn’t address tuition. Below are his comments, which have been edited for clarity and brevity.

Q: What is your biggest concern about the Biden plan?

A: Without more systemic reform, [the government cancellation would help] some people who really needed help, but we also gave a lot of money to people who didn’t need it. And we have exacerbated the problem for future students. Because we will encourage more borrowing. We encourage institutions to raise prices, and this contributes to two of the deepest problems we have, namely tuition inflation and borrowing that does not match what is affordable.

A: People who didn’t go to college, people who saved, and people who spent in their savings account to go to college. People who have already borrowed and repaid these loans and people who have gone to cheaper colleges, to be frugal. So there are simply equity issues inherent in the way this bailout was crafted.

Q: But the Biden plan will help a lot of people, right?

A: I’m happy for the people who get money from this. I know this will change the lives of many people. Is this the best use of taxpayers’ resources? I do not think so.

A: So we are getting a waiver for individuals earning up to $125,000 and couples earning up to $250,000. I don’t think anyone earning at those levels is economically needy. By giving them a bailout, we are unnecessarily taking resources away from the people who need them most, whether through more loan forgiveness for those at the bottom of the income distribution or through spending on other social programs. which are actually progressive.

Q: Does this rebate program do anything to control college costs or future student debt?

A: No, and that pushes us in the opposite direction. My concern is that if we send the message to students that they don’t need to repay the loans they take out, we encourage them to borrow more, and they will pay higher prices. And those two things allow institutions to increase their prices at a faster rate than they already did.

Q: What’s missing from the Biden plan?

A: I would like to see us move to an accountability system for colleges…if you want to stay in the (federal) student loan program you have to prove that your graduates are earning money after they graduate, and they are able to repay the loans they get through this program.

Q: How do you propose to proceed?

A: What I’m offering is basically a guarantee on these loans. If you look at how mortgages are granted or car loans are granted, the lender assesses whether the loan is affordable and can be repaid. In higher education, specifically the federal loan program, we have no underwriting. We are simply saying that anyone can borrow any amount of money up to the maximum, if they are in an accredited institution. And I think that’s absolutely the wrong policy.

Q: Why didn’t this happen?

A: It’s not really a sexy idea for politicians to come out and tell their constituents, I’m going to reform college accountability and eliminate the credentialing system and use results-based accountability. It made no sense. At least, it wasn’t before President Biden’s decision to put this at the top of the national agenda.

Q: Give us an example of what you offer. The simpler, the better.

A: We look at each institution’s student debt and what [graduates] are actually able to pay. If it’s less than they borrow, then we reduce what prospective students at that institution can borrow. And maybe we have to keep reducing it and reducing it until it hits zero. And that’s fine with me.

Q: As an economist, do you think the federal government subsidizes colleges through the pardon program?

A: Oh, absolutely. Can you imagine if the government went out and canceled every car loan for a Jeep? That would be a huge boon for Jeep dealerships, wouldn’t it? Because the product they sell becomes, in essence, much cheaper.

Q: Is the problem that there are too many colleges?

A: I am agnostic about the number of colleges. What I think, though, is that we’ve told too many people they should go to college. We’ve done a lot of people a disservice by selling them the idea that college is somehow a necessary part of the American dream.

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