Beth Akers began her freshman year at Ithaca College in upstate New York. But she had qualms about the debt she would take on at that private school, so she transferred to a less-expensive public school: the University at Albany-the State University of New York, or SUNY.
“And the rest, as they say, was history,” Akers said in an email. “I was much more comfortable with the financial tradeoff.”
Akers is an expert in labor economics and a resident fellow at the American Enterprise Institute, a center-right think tank in Washington. She’s a critical voice on the student debt crisis and advocates for cuts in college tuition and costs, saying colleges’ federal funding should be tied to job prospects — and pay — of graduates.
She contends that college can represent a huge bargain for many graduates as degrees lead to high-paying jobs.
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“But I also believe,” she said, “that it can’t be the only pathway for Americans to get themselves skills and education that they need to be able to contribute to the economy and support themselves financially.”
President Joe Biden’s recent debt forgiveness has moved student loans and debt high on the national political agenda. The plan will forgive $10,000 to $20,000 in federal student loans for people earning less than $125,000 and couples earning less than $250,000.
Estimates say the debt forgiveness would cost the U.S. government hundreds of billions of dollars. Advocates praise the plan as unburdening some — or all — of the debt for some federal student loan borrowers. An application for debt cancellation is scheduled to be posted on the Department of Education website by mid-October.
Final rules on the plan have not been released and some believe that it could be challenged in the courts.
Akers told The Inquirer that she doesn’t think the plan is fair and that it doesn’t address college costs. Below are her observations, which have been edited for clarity and brevity.
Q: What is your biggest concern about the Biden plan?
A: Without more systemic reform, [the government cancellation would help] some people who really did need help but we’ve also given a lot of money away to people who didn’t need the help. And we’ve exacerbated the problem for future students. Because we’ll be encouraging more borrowing. We’re encouraging institutions to raise prices, and that contributes to two of the deepest problems that we have, which are the tuition inflation and borrowing out of line with what’s affordable.
Q: Who won’t benefit?
A: People who didn’t go to college, people who saved, and those who spent out of their savings accounts to go to college. People who borrowed and paid back those loans already and people who went to less expensive colleges, in order to be frugal. So there’s just inherent fairness problems with the way that this bailout was crafted.
Q: But the Biden plan will help a lot of people, right?
A: I’m happy for the people who receive the money from this. I know it’s going to be transformational in the lives of a lot of people. Is it the best use of taxpayer resources? I don’t think so.
Q: What do you mean?
A: So we’re getting cancellation for individuals earning up to $125,000 and couples earning up to $250,000. I don’t think anybody earning at those levels is economically needy. By giving a bailout to them, we’re unnecessarily taking resources away from people who have more need, whether that be through greater loan cancellation for people at the bottom of the income distribution or spending on other social programs that are actually progressive.
Q: Does this forgiveness program do anything to control college costs or future student debt?
A: No, and it pushes us in the opposite direction. My concern is that if we send the message to students that they don’t need to pay back the loans that they take out, we encourage them to borrow more, and they will pay higher prices. And both of those things allow institutions to run up their prices at a faster rate than they were already doing.
Q: What is missing in the Biden plan?
A: I’d love to see us move to a system of accountability for colleges ... if you want to stay in the (federal) student loan program, you need to prove your graduates are earning money after they graduate, and they are able to pay back the loans that they’re getting through this program.
Q: How do you propose doing this?
A: What I’m proposing is, essentially, some underwriting on these loans. If you look at how mortgages are handed out, or auto loans are handed out, the lender assesses whether the loan is affordable and can be repaid. In higher education, specifically, the federal loan program, we have zero underwriting. We just say anybody can borrow any sum of money up to the maximum, if they’re at an accredited institution. And I think that’s absolutely the wrong policy.
Q: Why hasn’t this happened?
A: It’s not a really sexy idea for politicians to go out and say to their constituents, I’m going to reform college accountability and eliminate the accreditation system and use outcome-based accountability. It didn’t make sense. At least it didn’t before President Biden’s move to push this to the top of the national agenda.
Q: Give us an example of what you propose. The simpler, the better.
A: We look at student debt from each institution and what [graduates] are actually able to pay. If it’s less than what they’re borrowing, then we cut down what future students at that institution can borrow. And maybe we need to keep cutting it down and cutting it down until it gets to zero. And that’s fine with me.
Q: As an economist, do you believe the federal government is subsidizing colleges through the forgiveness program?
A: Oh, absolutely. Can you imagine if the government went out and canceled every car loan for a Jeep? It would be a huge boon to Jeep dealers, right? Because the product that they’re selling is, in essence, becoming a lot cheaper.
Q: Is the problem that there are too many colleges?
A: I’m agnostic about the number of colleges. What I do think, though, is that we have told too many people that they should go to college. We’ve done a disservice to a lot of people by selling them on the idea that college is kind of a necessary part of the American dream.