By Peter Morici
President Joe Biden’s student-loan forgiveness has attracted wide criticism , but few express the menace it poses to the Federal Reserve and congressional powers.
Federal student loans create more equal access to quality higher education for working- and middle-class students, and the average college graduate earns more , lives longer and expresses greater satisfaction with life.
However, the indiscriminate nature of the program permits universities to hawk degrees that offer few prospects of landing a good job and often victimize many less qualified students.
Saddled with debt
About half of college freshmen either leave without a degree or earn less than the average high school graduate . Yet, many are saddled with heavy debt they can’t or struggle to repay .
Federal undergraduate student loans are capped at $57,500 for financially independent students—$31,000 for those with parental support—but borrowing for graduate school has virtually no limit .
It doesn’t matter whether you are studying romance languages or electrical engineering.
The typical NYU masters in film studies owes $113,180 and earns $30,581 three years after graduation. Columbia’s program numbers are even worse , and the problem is endemic throughout softer professional programs and non-elite law schools.
Universities use the profits to subsidize undergraduate programs, bloated administrations, and light teaching loads.
Misallocated resources
All of this discourages college students from choosing majors wisely and high schools from steering more young people into apprenticeships and training programs. The latter often yield college-competitive pay , potentially creating many of the other above-mentioned life benefits.
University priorities for financial aid are sometimes questionable.
NYU offers free tuition for medical school . Considering that medical schools are among the most expensive enterprises universities run and virtually guarantee graduates high paying jobs, the free ride raises serious equity issues when the institution is saddling students in the arts, who will often end up in low-paying work, with massive debt.
Since 1980, the cost of a four-year degree at a state university has risen nearly two times the pace of inflation . Yet for most programs, universities use few extraordinary resources that justify this—buildings, Ph.D.s who usually receive free graduate education, a library, and computers.
All this shrinks the productive labor force, misallocates capital and undermines growth—and encourages universities to jack up prices.
Adding to inflation
The president will forgive $10,000 for individuals earning less than $125,000—$20,000 for couples earning less than $250,000. And doubles those figures for folks who received Pell Grants.
