WASHINGTON, DC - AUGUST 25: Student loan borrowers stage a rally in front of The White House to ... [+]
The Biden administration’s plan to forgive up to $20,000 per borrower in student loans— assuming that any legal challenge to it fails—has its supporters and detractors.
The supporters say that people are being crushed by student loans and kept from being productive, forming families, buying homes, making other large purchases, and otherwise contributing to the economy. Instead, they’re racking up interest payments that aren’t productive in terms of growing demand, economic activity, and jobs. They’re also drowning in what they owe, particularly if they’ve chosen to pursue advanced degrees that, sadly, often are viewed as ways to better themselves but, depending on the field and institution, frequently don’t pay off in terms of income to address loans. (Just talk to anyone trying to make a living as an adjunct professor at a university, including big-name schools.)
Detractors answer that people shouldn’t have student loans reduced because college graduates in general make more money, that they should have been more careful and researched the potential outcomes, that many, even relatively recent grads, do manage to pay off their loans, and that the many millions who don’t go to college shouldn’t pay for those who did so to gain economic privilege. They often will point out the moral danger of allowing people to get something for nothing (although that often happens in the U.S., especially for wealthier people through regulations and the tax code) and how they paid their own way through school.
Each side to varying degrees has its points, and it is possible to disagree on how much society should pay for higher education—cost and fairness versus benefit to society. But on that last point of paying for school through unrelenting diligence and hard work, it’s necessary to put things into an economic context.
Here’s an analysis, including average costs of attending one year of college from the 1970-71 through 2020-21 academic years, and household incomes over the same time period.
The costs of college come from the U.S. National Center for Education Statistics. They include tuition, fees, room, and board. These are average numbers across public and private institutions.
A single median income, like an average, can distort the picture by making it seem that everyone is the same. But by breaking the population into economic quintiles, comparisons become more meaningful. The first quintile is the 20% with the lowest income, the second is the 20% with the next highest income, and so on. The income for each in any given year is the highest number a household could have and remain in that quintile. The very top value is actually the cap for the top 15%, not 20%. It not only marks the top of that group, but the bottom of the wealthiest 5% of households, all of which make at least that.
Also, the year for the household income is just part of the academic year. Not a perfect comparison, but good enough and more readily available given the data sources. And all dollar amounts are nominal—in the value of money in that year, not accounting for inflation or adjusted for seasonality.
Typically, the comparison to show disparity in the ability to pay for college is between the overall median household income and the cost of a year of education (including room and board is reasonable because it becomes such a significant part of the overall expense). The difference here is that the advantages of greater wealth over time become more apparent, as the graph below shows.
Some details make this clearer. In the 1970-71 academic year, the cost of a year of school was $1,653. In the first (lowest) quintile, the highest annual household income was $3,688, or 2.2 times the size of the annual educational cost. The top of the highest quintile, and entry level for the top 5% of household incomes, was 14 times as large.
By the 2020-21 academic year, things had changed drastically. A year of education was $25,910. If you looked at the 1970-71 academic year in 2020-21 dollars, it is now 2.4 times more expensive for a year of school than it was. Except now, at the very top end of the lowest economic group, a household would have to use its entire income to pay for a year of college. It takes getting to the top of the second quintile, basically a foot in the middle class, so that the entire household’s income is double the cost of a single year.
At the highest quintile (and forget the very wealthiest), one year of household income is 10.6 times as much as a year of college. That income is $273,739, which a professional couple could well approach.
That’s basically the problem. Classic aid for the poorest students, the Pell grant, covered about two-thirds of average college costs in the 1974-75 academic year. Although the maximum grant size has increased from $2,635 to $6,345 between then and the 2020-2021 year, it would have to nearly triple again in size to cover the same percentage as it once did, according to the Pell Institute.
States have slashed their support for university education over the years. The top name schools have large endowments that can help the financially neediest, but if a student is from a middle-class family, chances are they’re taking out a far bigger load of loans to get through college. What was once possible—“Oh, I put myself through college working for $100 a week during the summer when gas-powered streetlights lit the sidewalks, so why can’t kids today?”—no longer is for many, if not most. To pretend that it is becomes a different form of gaslighting.
