The Real Reason For The Student Loan Crisis? Government

Dan O’Donnell explains why the cost of attending college has risen so dramatically over the past few decades and why President Biden’s student loan plan will only make things worse

Aug. 31, 2022
Perspective by Dan O’Donnell

Somewhat lost in the debate over President Biden’s plan to transfer hundreds of millions of dollars in student loan debt from borrowers to taxpayers is the underlying reason why so many people are struggling to repay their loans.

In 1980, the National Center for Education determined, the average annual cost to attend a four-year college was $2,845.44, which included tuition, fees, and room and board.  Adjusted for inflation, that would be $10,231 per year today.

The average annual cost today, however, is $28,775.  That represents a 180% increase over the past 40 years.  College costs have risen four times faster than the rate of inflation and eight times faster than wages, and as a result student loan debt has risen dramatically.  The average borrower now owes $35,000, and student loans trail only home mortgages as the single largest source of household debt.

College costs have risen four times faster than the rate of inflation and eight times faster than wages, and as a result student loan debt has risen dramatically.

How did this happen? In a word, government.  The Higher Education Act of 1965 made student loans guaranteed by taxpayers, which essentially eliminated the risk banks assumed in granting them.  As a result, the number of student loans issued increased exponentially.

At the same time, increased competition in the job market as the massive Baby Boom generation reached working age prompted parents and high school guidance counselors alike to push a college degree as the only guaranteed path to a good-paying job.

To meet this sudden demand, existing colleges expanded admissions and new institutions opened almost monthly.  With loans guaranteed by the federal government, there was no chance that that tuition wouldn’t be paid, so it started to increase.

And then it kept increasing.  To combat this, President Obama in 2010 federalized the student loan market, making the government the primary distributor.  Instead of taxpayers backing debt issued by private institutions, their dollars directly funded the loans.

At the time, Obama said this move would end the student debt crisis and the Congressional Budget Office projected that taxpayers would save $58 million over the next decade.  Instead, student loan debt defaults spiked and the cost to taxpayers ballooned to an estimated $300 billion over the next decade.

And tuition kept increasing.  Baby Boomer parents, who were told that a college degree was the only path to a good-paying job, convinced their children that a post-graduate degree was the only path to a good-paying job.  Today, graduate students hold approximately half of all student debt…even though just 25 percent of those with student debt attended grad school.

To meet this demand for postgraduate studies, colleges expanded even further.  A substantial percentage of tuition rates go toward salaries and benefits, and with more professors hired at ever-higher salaries, tuition has hit astronomical levels.

Wisconsin Governor Tony Evers earns a salary of $152,756.  He would be the 1,754th highest-paid UW System employee.

In the University of Wisconsin System alone, 10 employees make more than $500,000 annually. 34 make more than the President of the United States’ $400,000 salary.  128 employees make more than $300,000.  Wisconsin Governor Tony Evers earns a salary of $152,756.  He would be the 1,754th highest-paid UW System employee.

To its credit, the UW System has kept a tuition freeze in place since 2013, but that doesn’t mean that its costs have been flat.  To the contrary, in the most recent state budget, taxpayers are on the hook for approximately $6.5 billion per year in UW System funding—an increase of nearly $300 million over the last biennium.

Evers’ tenure has been a boon to university administrators and professors, who have seen big bumps in pay since his inauguration.  In 2018, the last year of Governor Scott Walker’s administration, there were nine fewer UW System employees who made $400,000 or more, 45 fewer who made $300,000 or more, and 237 fewer who made $200,000 or more.

Paradoxically, the Biden Administration believes the solution to the college cost crisis is more government intervention; incentivizing even more college students to take on even larger amounts of debt hoping that theirs too will magically be paid off for them.

As 40 years of evidence has proven, though, all this will do is make the cost of attending college even more unaffordable.