By offering a third plan for student loan debt forgiveness, President Joe Biden seems determined to reduce the amount of debt that many Americans owe from their student loans, that is, their borrowing for college expenses.
Why? Student debt has more than doubled over the last two decades. As of March 2023, 44 million borrowers owed more than $1.6 trillion in federal student loans. When private loans are included, this figure exceeds $1.7 trillion. Only home mortgage debt, at about $12 trillion, is larger.
Student loan debt is growing as more students attend college, and the average student takes on more debt. According to U.S. News and World Report, the average amount that a student owed increased by 25 percent between 2009 and 2021.
Students generally have to borrow more because college tuition and fees in the United States have grown faster than income. The cost of college is higher in the United States than in most other wealthy countries, where higher education is often free or heavily subsidized. Meanwhile, across the country, states spent less on public colleges and universities in 2020 than in 2008. As a result, students needed to pay (and borrow) more.
Thus, higher education costs are being transferred to students and parents, driving the student loan crisis. Previously, “state university” meant the state primarily funded a university for the benefit of the state.
There is an old joke that university administrators tell that goes like the following. “A state university used to mean that the university is funded by the state. Then a state university came to mean that it is supported by the state. But in recent years it has come to mean that the university is located in the state.”
Some examples illustrate this situation. In 2008, college revenues were about 40 percent of the cost in Alabama. Today, nearly $7 out of $10 going into the Alabama public college system comes from students, much of which is borrowed. State funding comprises only 4.3 percent of the budget at the University of Colorado Boulder and 8.6 percent of the University of Virginia’s academic budget. This withdrawal of public support for universities is a matter of national priority.
Four years ago, in supporting the advocacy of Senator Sanders for large-scale investment in favor of education and public universities, the internationally renowned economist Thomas Piketty tried to remind America about some of the details of its national history. He noted that historically, the prosperity of the United States relied in the twentieth century on the educational advance of the United States over Europe, producing a degree of equality in this field. Piketty noted that President Reagan’s policies halted this growth and ushered in an unprecedented rise in inequality.
Senator Sanders was simply proposing a return to the source of the country’s development model: a wide diffusion of education. Recognizing that relieving these heavy student loan debt obligations would help advance racial and socioeconomic equality and boost the economy, advocates have long pushed for student loan cancellation. They argue that without the burden of student loans, more people could buy homes, take entrepreneurial risks, or save for retirement.
Consequentially, President Biden is trying again to carry out a student loan cancellation plan after being blocked by Republicans and, ultimately, the U.S. Supreme Court, which ruled that Biden had overstepped his authority. His new plan would cancel up to $20,000 in interest for some 23 million Americans who now owe more than they originally borrowed.
The heavy burden of student debt severely hampers future prosperity in America.