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A system in desperate need of reform

Debt socialization is a bailout for higher ed


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Much of the commentary around President Joe Biden’s ill-conceived plan to cancel $10,000 of student loan debt for many borrowers has rightly focused on the ethical and economic implications related to individuals. Indeed, the idea that promises need not be kept and that promissory notes can simply be memory holed if we elect the right people has the potential to seriously undermine trust—which has already fallen to historically low levels. And on top of record federal debt, the cost of the loan transference program is estimated to run anywhere from $240 billion to $500 billion—or more.

Some have called the plan a “debt forgiveness” measure and attempted to defend it on theological grounds. But it really is a student-debt socialization plan, which in many ways is the logical consequence of the federally driven higher education student loan industrial complex. As part of its “fact sheet” making the case for the plan, the Biden Administration points out that federal grants have “not kept pace” with the huge increases in college costs over the last 40 years.

What the fact sheet omits, however, is that federally backed student loans have grown along with the costs of higher education, helping facilitate administrative bloat and mission drift along the way. The stated goal of the federal government’s panoply of loan programs is to make college more accessible and affordable, to the tune of roughly $50 billion in 2022. But as more people have more money to spend on college, costs have also risen, driven in large part by the addition of legions of administrators, coordinators, directors, facilitators, and regulatory officers.

No industry is in greater need of innovation and disruption than higher education. And the Biden debt cancellation plan amounts to a bailout of a system overrun with tenured radicals, diversity ideologues, and overpriced cafeteria food.

The economist William J. Baumol is associated with a helpful theory describing how things that do not increase in terms of productivity can still become more expensive over time. Baumol’s so-called “cost disease” holds that as an economy grows, even sectors not experiencing growth can see rising wages and costs. This is especially true where there is a residual or stable reserve of prestige.

No industry is in greater need of innovation and disruption than higher education.

Another economic theory known as “Bowen’s revenue theory of cost”—named for the economist Howard R. Bowen—also helps explain how government subsidies tend to increase higher education costs. As the money for college becomes easier to come by, colleges are incentivized to find new ways to spend as much of that money as they can get their students to give them—or promise to give them. Colleges then compete with one another not only on the basis of academic prestige and value but also in terms of creature comforts and cultural accommodation.

In this way, federal loan programs have helped increase the overall cost of higher education. When the inflated price tag of a college degree inevitably turns out to be greater than its usefulness in the marketplace, the college graduate is faced with an existential crisis. And when the student’s responsibility to pay back these loans is negated through government fiat, the costs are socialized to all taxpayers. Every taxpayer in America is now functionally underwriting the corrupt higher education system, both during school and after graduation.

The entire system needs reform. But instead of doing the necessary work of speaking the truth about what college ought to cost and what it ought to accomplish, politicians revert to doing what comes most naturally to them: cutting checks to curry favor, consolidate power, and remain in office.

Some schools have seen these and other problems and have therefore opted out of federal funds. These schools do not take government funds on principle. They know that the hand that writes the check ultimately calls the shots, and their mission is too important to sell for a mess of pottage.

More schools, especially those grounded in Christian convictions and pursuing a Christian mission, should begin the hard work of weaning themselves off government largess. And the federal government needs to stop treating higher education like a plaything for politicians. It will take time and perseverance to do so. But the renewal and reformation of higher education is critical to the larger revitalization of America, and the human costs of perpetuating a broken system are simply too high to bear.


Jordan J. Ballor

Jordan is director of research at the Center for Religion, Culture & Democracy, an initiative of First Liberty Institute, and the associate director of the Junius Institute for Digital Reformation Research at Calvin Theological Seminary and the Henry Institute for the Study of Christianity & Politics at Calvin University.


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