Student debt has been burbling among Democrats as an election year issue for some time. But Vermont Sen. Bernie Sanders, a presidential candidate, and Minnesota Democratic Rep. Ilhan Omar made it specific recently with a proposal to forgive all existing student loans and to make all public post-secondary education free in the future. The proposed $1.6 trillion write-off would be funded by a tax on “speculative” trades in financial markets.
I doubt this will happen, but solutions aside for now, the problem is a valid one. The increase in college costs, the reduction in state support of public universities, and the reduction in real terms of direct federal grants all come together so that substantial numbers of students need to borrow large amounts of money. They end up with loan amounts that are very difficult to service with the sorts of jobs they get. This debt is not dischargeable in bankruptcy.
But the issue is complex, and liberal politicians like Sanders and Omar often come up with solutions without understanding key components of the problem. For now, let’s deal with such ignored background issues in this column and study the specifics of Omar-Sanders proposals in a future one.
Start by understanding that this is a situation where discussing the “average” amount owed is about as misleading as talking about an “average” farm subsidy or an “average” SNAP (food stamp) payment. In all cases, amounts vary greatly and the distributions are skewed.
For student debt, a relatively small number owe extreme amounts, in the hundreds of thousands of dollars. Some of these are medical and dental students, and some are people who took a long time getting a graduate degree at some expensive institution and did not get any sort of research or teaching assistance stipend that picked up part of the cost.
Then there are many more who have amounts large enough to be difficult to service, in the tens of thousands of dollars, often around the means and medians for all students. Finally, there are some who owe amounts in a range of $15,000 to $20,000 down to a few thousand. These are usually people who attended state schools, including community colleges, with low tuition levels and who worked, in a few cases, with employer education benefits and in others with GI Bill benefits.
So the burden of student debt at graduation does vary greatly between individuals. It would be hard to devise any program of blanket forgiveness of debt that would not end up seeming highly unfair to some, perhaps many.
The phenomenon of accounting, finance, nursing and STEM students who complain about the loan run-up but who also get good job offers right out of college — and who buy new cars near their total student debt — is not a false one. But those numbers are limited and a represent a smaller percentage of the total than in the past.
Those calling for debt erasure and free tuition may mention rising costs, but seldom parse the problem out. It has multiple roots. At state schools in most states, the fraction of the cost of undergraduate teaching posts paid by state treasuries has been falling for decades.
My first term as a student at the University of Minnesota in Winter Quarter 1971 cost $122 in resident tuition and fees that included broad health coverage. With a slight annual bump for the Fall Quarter, my first full year was about $375. Adjusted for inflation, that would now be some $2,350. But actual tuition and fees are now about $15,000.
Some of that increase above the rate of inflation is due to lower state funding, but this too is complicated.
The percentage of cost of undergraduate education appropriated from state treasuries has declined for post-secondary systems in nearly all states. However, if one looks at inflation-adjusted per-student appropriations, the decline is relatively much lower. In fact, increases in per-student spending at state institutions is often far above inflation and has been for decades.
Some of this finding is for long-neglected services, such as help for students with learning disabilities or mental health issues. Some is due to expensive study abroad semesters. Some is for swanky fitness centers and less-crowded dormitories. Some is for sports programs not supported from revenue-producing intercollegiate athletics. Some is for lighter faculty teaching loads than was the case 40 or 50 years ago. And some is for generic overhead administration. The point is that increases in such costs eat up a larger fraction of state outlays.
Advocates for free education such as Omar and Sanders say little about these cost increases. They similarly ignore the role they envision for private institutions, long one of the great strengths of U.S. higher education. If tuition at state schools is to become entirely free, what will happen to the others? Large and famous research universities like Harvard and Stanford will survive, but what about schools such as Carleton, St. Olaf, Bethel, Macalester or the Concordias in Moorhead and St. Paul? What about the University of Mary in Bismarck and the University of Jamestown?
Many private colleges have seen faster relative increases in per-student costs than some of the state schools. Many administrators find themselves in a classic situation of what economists call “monopolistic competition:” Competition on price is limited, and instead is concentrated in services or other amenities. If one private college in a metro area like the Twin Cities has a fancy fitness center, others feel they need them to survive. If one has semester or J-term study abroad programs in a panoply of 20 countries, others feel they must meet the raise. Ditto for weekend MBA, physician’s assistant and Masters of Education programs.
The outcome of monopolistic competition in retailing is very thin profit margins. Something analogous happens in private colleges. Until 35 years ago, there was only one MBA program in the Twin Cities. Now there are 14 or more, depending on how you count them. Most have few students relative to even bare-bones administrative costs yet were seen prospectively as cash cows at their inception 20 years ago.
Also, some not-well-known support sources for students have faded away.
For 40 years, people eligible for Social Security as survivors could get benefits until they married or reached their 22nd birthday as long as they were enrolled in school. My father had died before my birth, so I got such benefits every month of my life until enlisting in the Army. But I was only 20 when I got out and started at the U. So I got another 21 months of Social Security plus GI Bill benefits. But the “reforms” of Social Security in the 1980s reduced the cutoff until two months after one’s 19th birthday if still in school. This cut of 34 months of benefits affects hundreds of thousands of people each year.
Similarly, in the go-go years of the 1990s, employer-provided tuition assistance by corporate employers became common. This was somewhat more important for graduate work than undergraduate, but many used it for bachelor’s degree completion. After the great financial debacle that began in 2007, it is now scarce indeed.
Outright federal grants, such as Pells, have expanded fitfully, sometimes at or below general inflation, but with spikes, such as a large one early in the Obama administration that was fading away by its close. The GI Bill also has had various permutations over the years. But these, along with specific aspects of changes proposed by Democrats, must wait for a future column.