Federal student loans are having a moment, and not a good one. With the COVID-19 repayment pause due to end in October, House Speaker Nancy Pelosi opposing massive loan forgiveness, and two Wall Street Journal articles shining spotlights on how federal programs enable staggering tuition inflation, much attention is being paid to the crippling unintended consequences of federal higher ed “help.”
But what to do about it?
As I have argued for years, the right thing to do is phase out all federal aid programs, starting with those least focused on the poor and basically working our way down. Of course, that is currently a political nonstarter – too many colleges rely on easy money through students, and too many current and prospective students see the price of college and think, “How could I pay without aid?”
The answer, for the most part, is you couldn’t: the aid is baked into the price. But if we want pricing—and spending—sanity, we have to start removing the federal great inflator.
As Diego Zuluaga and I argued in this op‐ed, and several co‐authors and I offered in this blueprint to start shrinking the federal government’s education presence down to constitutional size, the right place to start is PLUS loans. These are loans that graduate students and parents can take out for any amount up to the cost of attendance, which revenue‐loving schools set. They are a big part of one of the WSJ stories—the one about graduate students at some of the country’s most prestigious universities taking on huge debt for small incomes—and this depressing Newsweek piece laying out how parents are going into debilitating debt to fund their kids’ educations.
On Twitter yesterday, several higher education wonks were lamenting that PLUS has almost no supporters among higher ed analysts, yet there is no momentum to kill the program. In part this is because when the Obama administration tried to constrain it in 2011 by tightening creditworthiness requirements there was an outcry, especially from historically black institutions, which relied on students accessing the funds. That is a sympathetic group of schools, and the Obama folks had implemented the change mid‐year, catching schools and students off‐guard.
The administration eventually softened the change, but PLUS has gotten bigger and more damaging since.
Newsweek reports, “Over the past decade, a time when lending to undergraduates has actually been falling, parent borrowing under the federal PLUS loan program has increased 16 percent; over the past three decades, it’s shot up more than 750 percent.” Meanwhile, “nearly one in 10 parents default or are seriously late with payments within just two years of their child leaving school. That…rate hit 20 percent or more at over 150 schools and at least 30 to 40 percent at dozens of institutions.”
For the good of students and families now and in the future, we need to phase out college‐enriching federal student aid. Short of that, we should at least eliminate PLUS. Perhaps the stars are aligning to do that.
