The cost of attending a four-year college has more than doubled over the last two decades, along with student loan borrowing, and experts are skeptical that a generous loan forgiveness plan announced by the Biden administration will change things.
President Joe Biden announced last week that the Department of Education would be forgiving $20,000 in federally held student loans for borrowers who had received Pell Grants, and $10,000 for all other borrowers, provided that the borrower did not make over $125,000 a year in salary.
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In the eyes of two higher education finance experts, the loan forgiveness and an accompanying plan to lower monthly payments for borrowers on “income driven repayment plans” will only exacerbate a problem that has seen tuition costs balloon over the last 20 years.
“It’s going to get even worse,” Jim Blew, the co-founder of the Defense of Freedom Institute and a former Department of Education official in the Trump administration, told the Washington Examiner. “Even more people are going to have an incentive to overborrow because they know that, at the end of the day, it will be forgiven.”
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Beth Akers, a senior fellow at the American Enterprise Institute, a conservative think tank, said the administration’s policy was essentially “a backdoor subsidy” to institutions of higher education.
“This is something that will get passed through to institutions in a big way,” Akers said, “maybe allowing them to increase their prices because they are selling something that’s inherently more valuable now because of the government’s promise to bail out on affordable loans.”
According to data from the College Board, the total tuition and fees for a four-year in-state public college in the 2000-2001 school year was $3,487, and room and board costs were at $4,931, for a total annual cost of $8,418. By the 2010-2011 school year, the cost of tuition had doubled to $7,613, and room and board had increased to $8,549, costing students an annual bill of $16,162.
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By the 2021-2022 school year, in-state public college tuition had ballooned to $10,740, and room and board cost residential students $11,950, for a total of $22,690 a year — nearly three times the cost of attending school 21 years before.
The price spikes were even more dramatic at private institutions and for out-of-state students at public colleges.
In 2000-2001, the total cost of attending a private university, tuition plus room and board, was $22,401, while attending an out-of-state public institution was $13,951. Last year, institutions charged $39,510 for an out-of-state public education and $51,690 to attend a private college.
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And with the rising costs of higher education, so rose the average amount of loans held by students upon graduation, rising from $16,900 in 2001 to $31,100 in 2021.
Both Akers and Blew noted that, while the loan cancellation had garnered the most attention, the announced changes to “income driven repayment” plans could end up being the most harmful effects on college costs in the long term.
Under an income-driven repayment plan, Blew explained, borrowers make monthly payments based on 10% of their discretionary income, or their income above the poverty line, so a borrower whose income is below the poverty line has a monthly payment of $0. After 20 years, borrowers on an income-driven plan have their entire balance forgiven.
Under the Biden administration plan, the required monthly payment for an income-driven repayment plan will be reduced to 5% of discretionary income, and the balance will be forgiven after 10 years.
“This is an incentive to overborrow,” Blew said. “You know that you can borrow as much money, then if you pay that based on your discretionary income, you’re going to have a big chunk of it forgiven at the end.”
“What this does, both the combination of the loan cancellation but especially the reform to the income-driven repayment program, [is] make it cheaper to go to college at the given prices,” Akers said.
Akers, the American Enterprise Institute scholar, was quick to point out that the ultimate goal of the loan forgiveness was political.
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“The intention was politics,” she said. “It was to make a certain constituency happy, which is this well-educated young Democrat that the party seems to believe they need to give something to in order to drive turnout.”
