Last Thursday the Morning Call (a newspaper published in Allenton, Pennsylvania, for those of you who are not local((Look at me, implying not only that I have readers, but that they are geographically diverse.))) published “Invest in state schools, not in student debt,” an editorial by Eduardo Porter from Bloomberg Opinion.1
Porter’s thesis is that the federal contribution to the availability of higher education, in the form of student loans and grants, largely resulted in price increases by “[p]retty much the entire educational ecosystem”((Porter spews particular venom at for-profit schools.)) and it would now be better (although not politically palatable) to spend the $500 billion plus that President Biden’s student debt cancellation is going to cost (in the form of foregone revenue) on matching the State appropriations to their public colleges and universities.
While I certainly agree with the premise that the availability of financial aid caused a large part of the increase in college costs (because any broad-based demand-side subsidy will tend to increase the cost of the subsidized commodity), the suggested solution is objectionable for any number of reasons.
Let’s start with the one Porter implicitly recognized when he doubted the political palatability of his proposal, student loan relief seeks to a solve a different problem. It attempts to mitigate perceived financial hardship resulting from the borrowers’ past consumption of higher education, while Porter’s “investment” is aimed at preventing or limiting future price increases, directly benefiting a mostly different set of student-consumers.
Further, even if the President((Technically, the Administration’s argument is that the secretary of education has the authority, but same difference.)) has the authority to cancel student loan debt as he proposes (which is by no means certain–Nancy Pelosi herself denied in the summer of 2021), that is hardly the same thing as sending checks to States or schools.
Finally (for now), the proposal does not really increase the supply of higher education, it just subsidizes demand less directly. No institution ever thinks it has enough revenue as new spending will immediately be seen to be needed. (Look at New Jersey’s 2022-2023 State budget; lots of extra money balanced by lots of new spending (I’m sorry, “investment”).)
Jay Bohn
September 19, 2022
- I could not find the editorial on mcall.com, I imagine because it is syndicated, but it appears to be on Bloomberg’s own site (paywall) under the title “Deliver Students From Debt by Investing in State Schools.” [↩]