In case you haven’t heard, the price tag for President Joe Biden’s student loan bailout is likely to total $1 trillion over the next decade. This is on top of the massive amounts of money taxpayers already fork over each year to subsidize college education. It’s time to ask whether any of this is worth it.
The $1 trillion figure comes from a study by the Wharton School of the student loan forgiveness plan Biden plans to implement. As part of the plan, he’d cancel $10,000 in student debt for millions of students, which will cost upward of $519 billion. But that’s only part of Biden’s college loan bailout plan.
The president is also extending the “emergency” pause on loan payments first enacted in March 2020 during the COVID lockdowns. It was originally supposed to last only a couple months but has been repeatedly extended. The latest plan is to keep this “temporary” suspension in place until the end of this year. That will cost $16 billion, according to Wharton.
Biden also plans to make the “income-driven repayment” program far more generous. This subsidy, started under President Bill Clinton, has been repeatedly sweetened since.
As it stands, anyone who enrolls in the IDR program can cap student loan payments at 10% of their income. Whatever’s left of the loan balance after 20 years gets wiped off the books.
Biden’s plan is to cap payments at 5% of income, nearly double the amount excluded from income calculations, and cancel any remaining debt after just 10 years. Assuming that most students will jump at this opportunity, this will cost taxpayers another $450 billion over the next decade, Wharton calculates.
Add it all up and the 10-year cost of Biden’s student loan bailout hits $1 trillion, according to Wharton.
As huge as this price tag is, it’s just icing on the cake when it comes to federal subsidies for colleges. The College Board, which tracks how much money is thrown at college students, reports that federal aid in the 2020-2021 school year was $134.4 billion.
Over the past decade, federal aid totaled $1.7 trillion, with states throwing in another $119 billion. As the chart shows, federal aid has exploded.
Add in grants from institutions, individuals, and employers, and the amount of college aid over the past 10 years totaled $2.6 trillion.
Biden’s bailout will add another $1 trillion on top of this. If the past decade’s aid spending remains constant, the federal government will be spending upward of $270 billion a year subsidizing colleges. (That compares with $140 billion a year for food aid.)
And what are we getting for all this largess? Nothing. The explosion in college aid fueled hyperinflation in college tuition, which miraculously has kept almost perfect pace with the increase in aid. As the College Board notes:
Between 2006-07 and 2021-22, the average grant aid per first-time full-time in-state student at public four-year colleges increased by $3,740 in 2021 dollars … the average published tuition and fees in this sector increased by $3,010.
Now ask yourself, is all this taxpayer money worth it if all it’s doing is fueling tuition inflation?
Then ask how is any of this fair? A college education is supposed to pay dividends for the rest of a person’s life in the form of higher earnings. In other words, it’s an investment in yourself. So why do taxpayers (most of whom never got a college degree) have to spend so much of their hard-earned money subsidizing others’ educations?
Rather than just complain about Biden’s loan cancelation, we should take the opportunity to reassess the entire college aid scheme.
— Written by the I&I Editorial Board