Nearly everyone recognizes that student debt has risen to a level that will be difficult to sustain, given the nation’s slow-growing economy and the sagging incomes of too many college-educated Americans. Nearly 40 million Americans carry some form of student debt; more than 7 million are in default on their loans, and many more have missed scheduled payments. The total amount of outstanding student debt is estimated to be $1.2 trillion, with about two-thirds of this sum underwritten by the federal government.
It is not difficult to figure out the reasons for exploding student debt. On the one hand, high school graduates and their parents understand that a college education is essential for entry into the narrowing world of high-paying professional jobs. College and university enrollments increased by more than a third between 2000 and 2014, from 15 million to more than 21 million students. At the same time, college tuition and fees have been growing at more than three times the rate of inflation for three decades now and at more than two times the growth in the median family income over the same period. In 2015, the average tuition (plus fees) for in‑state students at public universities is in the neighborhood of $10,000 per year and over $40,000 per year for students attending private universities. A fair amount of careful research suggests that these soaring costs are partly attributable to the increasing availability of loans encouraged by federal policy.
Hillary Clinton’s new $350 billion (over 10 years) proposal takes aim at this vast constituency of voters paying off student loans or worried about the costs of taking them on. She says that her proposal will enable most students to meet college expenses without taking on loans, a claim that is surely exaggerated in view of the scale and scope of her plan. At best it is a proposal to mitigate the problem somewhat by permitting borrowers to reduce interest rates on current loans and to use the carrot of federal funds to force states to invest more public funds in higher education.
The largest portion of this money ($175 billion) would go to encourage (bribe) state governments to invest more resources in higher education so that tuition charges can be reduced at four-year institutions and eliminated entirely for two-year community colleges. Under her plan, the Department of Education would make funds available to match state budget allocations for higher education and to reward states that keep a lid on tuition increases. She would also expand work-study programs to permit more students to work off college expenses during their student years. The combined federal and state funds, as much as $35 billion per year across the country, would theoretically allow states to maintain tuition at affordable levels for students so that loans would be unnecessary. This is a point worth emphasizing: She is not making tuition “free,” but rather substituting public funds for student-paid tuition.
Total tuition charges at all institutions (public and private) in 2015 will amount to around $300 billion, plus expenses for books, room, and board. A mix of federal, state, and private scholarships subsidizes a significant portion of this sum. The federal government, for example, spends approximately $30 billion per year on Pell grants to support tuition and other expenses for more than nine million students from lower-income families. Clinton’s contribution of $17.5 billion in federal funds per annum would make a dent in this package, but it is hard to see how it would ever allow reductions in tuition and fees to levels that would allow students to dispense with loans.
Appropriations for higher education in states across the country have fallen off by an average of 16 percent since the onset of the financial crisis in 2008. Clinton along with the liberal think tanks associated with the Democratic party claim that this is a major cause of tuition increases at public universities and thus a major source of the student debt crisis. This is a greatly exaggerated claim, however, since student debt was accumulating for decades prior to the financial crisis. The financial crisis may have exacerbated the problem, but it did not cause it.
Clinton should ask herself why so many states found it necessary to cut appropriations for higher education in the years following the financial crisis. The major reason was that governors and legislators had other priorities, among them paying for public employee pensions, meeting federal mandates to pay for Medicaid, welfare, and K-12 education, and finding revenues to meet law enforcement and transportation budgets. It is not hard to understand why higher education has been squeezed out in the keen competition for state funds.
Clinton would now hold out federal dollars to induce states to appropriate more funds for higher education, just as the federal government already does with Medicaid, welfare, K-12 education, and transportation projects. Her proposal would compel governors and legislators either to raise taxes to cover those expenditures or to cut budgets in other areas—or, alternatively, to dispense with the federal funds altogether. The federal government, in short, has contributed to the budget crises in the states through its mandates and matching programs, and Clinton now proposes to address that problem by adding still another mandate and matching program.
The major problem in higher education today is one of cost and expense, and only secondarily who happens to pay for it. American colleges and universities are highly inefficient enterprises that maintain scores of useless, duplicative, out of date, and politically correct programs for no other reason than that there are interest groups on campus that would protest if any of them were eliminated. Too many universities maintain doctoral programs in fields for which graduates have no hope of finding jobs. Many of those programs should be eliminated in the service both of long-run efficiency and educational integrity. Ideally, this kind of streamlining should take place state-by-state and campus-by-campus as governors, legislators, and academic leaders grapple with priorities and limited resources. Yet Clinton’s plan would encourage them to put off the day of reckoning in the hope that all programs can be maintained with still another infusion of federal funds.
Clinton’s approach is a typical Democratic plan that relies on subsidies, higher taxes, more spending, and cost shifting among participants in the higher education industry. It will do little to encourage innovation, restructuring, and cost cutting among institutions of higher learning. It represents still another example of kicking the can down the road.
James Piereson is a senior fellow at the Manhattan Institute.
