Commentary: Increase support for public schools to end the debt crisis

By Eduardo Porter / Bloomberg review

President Biden will spend several hundred billion dollars to cancel the debts of millions of students. The big outlay will likely bolster his standing among graduates in the up to $125,000-a-year salary bracket who populate the deep blue polling places of urban America.

Perhaps the next administration will try to solve the problem of American higher education.

About a generation ago, America decided that expanding access to a college education was essential to sustaining economic progress and expanding economic opportunity for all of American society.

The decision, unfortunately, was not accompanied by the necessary resources. The state and city network of public colleges and universities—the nation’s primary, if not only, source of affordable, quality higher education—could not cope.

Fall undergraduate enrollment more than halved between 1990 and peaked at 21 million in 2010, far outpacing the roughly 13% increase in state and local appropriations for higher education over the past year. the same period.

Not only has the share of students enrolled in public colleges and universities fallen to 73% from 78% in 1990, but those who enroll must pay more for the privilege of offsetting declining state and local funding. Tuition now covers 42% of public college and university revenue, according to the Association of State Higher Education Officials, up from 29% since 2000.

By the way, these students are the luckiest. The unlucky ones who didn’t make the cut found themselves trapped in the maw of for-profit schools selling the mirage of success. Two million students enrolled in for-profit colleges in fall 2010, the peak year for the industry, nearly 10 times more than 20 years earlier. On average, they paid about $14,000 more per year than students in public institutions. Many ended up with a worthless degree or no degree at all. (After years of scandals, annual enrollment at for-profit colleges has fallen to about 1 million.)

To be fair, the federal government has tried to cover some of the state and local funding shortfalls. The problem is that he chose to provide the money in a rather stupid way: handing out scholarships and loans so that students could afford more tuition without doing anything to ensure that the quality education offered would increase to meet growing demand.

This federal strategy not only spawned a predatory, for-profit education industry that set tuition fees at the limit of what student loans could support. Virtually the entire education ecosystem has scrambled to capture as much federal money as possible by raising tuition and fees.

A study by economists from Brigham Young University, the Federal Reserve Bank of New York, and Harvard found that for every dollar of increase in the ceiling that students could borrow under the subsidized federal loan program, sticker price increases captured 60 cents. The students no longer received instruction. They were just left with a heavier bag.

Perhaps Biden’s good intentions are not to be blamed as he tries to ease some of that burden. But his offer to cancel the debt of millions of students does not correct political errors. It is nothing more than a bandage on a wound inflicted on society by bad public policy.

Indeed, to call it that is perhaps too generous. If college administrators come to believe that periodic loan forgiveness has become a regular policy tool, they will inevitably incorporate it into their tuition schedules: students may bear more debt and pay higher tuition, if the government wants to step in on the road to pick up the tab.

So what can be done? Instead of driving demand for the education that industry will provide, Washington should work on the supply side. A good place to start might be to bolster the financial capacity of state colleges and university systems that have done the best job to date of providing affordable higher education to Americans of limited means.

Appropriations to pay for public higher education have shrunk to $9,327 per full-time equivalent student, according to the Association of Higher Education Officials. This is about 10% less since 2000.

It might not be politically acceptable for the Biden administration to simply seize the planned $500 billion in debt relief and hand it over to the states to invest in their colleges. But the federal government could push state governments to stop the cut in education funding.

Consider Medicaid, which takes about 20% of state budgets. The growth of Medicaid has crowded out state education budgets for years. It enjoys what state college administrators might consider an unfair advantage: For every dollar the state spends on the program, the federal government adds $5.

Harvard’s David Deming suggests that public education would benefit from similar support. A $1 for $1 matching grant would not only provide substantial financial support to state colleges and universities. It would also reduce the financial incentive for states to take money out of schools and invest it in hospitals. And aid could come with strings attached to ensure quality and accountability, perhaps even to the point of normalizing certain characteristics of higher education.

This approach could be politically difficult at a time when much of the political class vehemently accuses the higher education system of brainwashing children into questioning their privileges and embracing liberal causes. And yet, the political downside can’t be worse than handing out tens of thousands of dollars to young graduates earning $125,000 a year in urban blue America.

Eduardo Porter is a Bloomberg Opinion columnist covering Latin America, US economic policy and immigration. He is the author of “American Poison: How Racial Hostility Destroyed Our Promise” and “The Price of Everything: Finding Method in the Madness of What Things Cost”.