HIGHER COSTS FOR HIGHER ED.

• Author: Suderman, Peter
• Position: ECONOMICS

WHEN PRESIDENT JOE Biden announced in August that he was canceling thousands of dollars in student loan debt for most current borrowers, he explained that his plan was partly a response to the rapid rise in the cost of higher education.

"Here's the deal," Biden said. "The cost of education beyond high school has gone up significantly. The total cost to attend a public four-year university has... nearly tripled in 40 years--tripled." Education, Biden insisted, is the "ticket to a better life." Yet thanks to rapidly increasing costs, "that ticket has become too expensive for too many Americans."

It is true that the cost of higher education has risen markedly in the last four decades. It is also true that as costs have risen, so has the number of graduates with loans. Prior to Biden's forgiveness plan, there was $1.6 trillion in outstanding student loan debt, up from about $187 billion in 1995. But Biden's plan not only fails to address any of the factors driving those cost increases; it is nearly certain to make the problem worse.

One reason colleges have continued to raise tuition prices and fees is that the federal government has enabled them to do so by backstopping student loans. In 2010, as part of the Obamacare reconciliation package, the federal government effectively took over the student loan market in its entirety.

The widespread availability of student aid has provided financial assistance to millions of student borrowers. But it also has given colleges a larger pool of money from which to draw. As loans have become more common and more generous, colleges have built elaborate, sometimes luxurious facilities and hired armies of administrative staff, often with quite generous salaries. Although it may seem like a paradox, the expansion of student financial aid has made college more expensive.

Biden's student loan forgiveness plan is apt to have the same effect. It will cancel up to $10,000 in federal student debt (or $20,000 for Pell Grant recipients) for individuals making up to $125,000 a year and couples making up to $250,000. That is effectively a subsidy on top of a subsidy. It makes borrowing cheaper by reducing the amount that has to be repaid.

Although the debt forgiveness currently is structured as a one-time action, it is likely to set up the...