Remember that credit is money.
—Benjamin Franklin
The June 2023 Supreme Court decision to reject the Biden administration’s plan that pandered to those claiming impoverishment by the costs of higher education is a second-act curtain on the student debt drama. A third act in the drama was outlined by President Biden on June 30 using piecemeal administrative decisions.
For more than twenty years, the federal student loan program has been mismanaged. Revolving leadership, congressional pressure, and confusion on what constitutes a loan obligation have led to this predicament. The Supreme Court’s decision has provided a pause so that we can examine the twenty-first-century value of the current program.
Federal funding of student loans originally was intended to encourage human capital, skills, and critical thinking. While the higher education system does not produce anything per se, all certificates, diplomas, and degrees are products of a large educational complex. For investment in skills to leverage value such as human capital, a definable gain is quantified by the price that employers will pay on the free market for a degree holder. Sadly, objective information from these price points is obscured by an argument that invokes the theorem of “social return on investment” (social ROI). Social ROI claims benefits to all of society, regardless of degree or field of study. Allan Golston, president of the US Program for the Bill and Melinda Gates Foundation, wrote this in 2021: “What is college worth? It’s a question many Americans are asking, especially in light of the COVID-19 pandemic. And it’s justified: The return on investment (ROI) has not been well understood, and the results are uneven.”
In his September 28, 2022, blog, Golston summarized the findings of a survey among high school graduates who chose not to attend college: “Three key themes stand out to me: 1) students are concerned about college costs, 2) they have questions about the value of postsecondary education, and 3) many are worried about disrupting their livelihoods to attend college.”
How does forgiving student debt address Golston’s concerns? Who has come forward to address cost and value issues? What would a Venn diagram of the federal student loan program’s success look like when aggregating the personal experiences of those who participated? Consider these statistics:
Before the covid-19 pandemic, only about half of student loans were being repaid; 25 percent were delinquent or in defaultSix percent were in, and 6 percent were in direct collections, and the Brookings Institution warned that student loan contracts from the “early 2,000s” could have default rates as high as 40 percent in 2023.In a 2021 survey, over 45 percent of students with degrees in humanities, arts, or social and behavioral sciences wished they had chosen a different major.In a 2023 Wall Street Journal poll, 42 percent of college graduates said that getting a degree wasn’t worth the cost.The current average undergraduate dropout rate is 40 percent.Sixty-two percent of students finish their degree in six years.
Three frequently mentioned benefits of a college degree, with little or no direct human capital gained, are secure employment, higher wages, and employer signaling. These justifications fail soundly when examined because they rely on an averaging sleight of hand to count all degrees equal.
In May 2023, the unemployment rate published by the Bureau of Labor Statistics (BLS) was 3.9 percent for high school graduates, 3.2 percent for those with some college credit, and 2.1 percent for college graduates. This significant marginal difference has remained relatively consistent. However, 13.1 percent of the base of graduates used in this comparison have an advanced degree, skewing the employment averages.
The lower unemployment rate for college graduates has been conclusively refuted by Bryan Caplan of George Mason University. The BLS comparison places two distinct groups of people—those who choose to attend college and those who do not—into a forced equation. The metric of higher wages also fails when the wages of those who have an advanced degree are withdrawn from the “college” category and the remainder adjusted for the different attitudes of those surveyed.
Employers value a college degree as a benefit to the workplace even without a skill match. Someone may prove his or her employability by spending up to five years and incurring a $30,000 (average) debt to qualify for a job performing work for which minimal preparation is provided in college. A comparable signal value is achieved by four or five years of employment history or service in the military or AmeriCorps VISTA. However, the mismatch between skills and work can make an employer reticent to hire and a graduate discontented and may only provide a temporary solution in a hot labor market.
Advocates of the degree signal cite language used most often by job-training programs offered by businesses such as Goodwill Industries or through academic studies at Georgetown University. These programs identify better jobs, higher income, reduced government dependence, higher tax contributions, and better quality of life. Universities may add social contact as a step to Maslow’s theory of self-actualization. In Economic Calculation in the Socialist Commonwealth, Ludwig von Mises writes: “In the socialist commonwealth every economic change becomes an undertaking whose success can be neither appraised in advance nor later retrospectively determined. There is only groping in the dark. Socialism is the abolition of rational economy.”
Does the student debt write-off push higher education’s claim of social ROI into the red? To be fair we need to apply the analytic hierarchy process (AHP) that is used by many social impact and nonprofit organizations. AHP proponents claim it is “useful for making multicriteria decisions involving benefits, opportunities, costs, and risks.” The process starts with objective measurements and then uses paired comparisons to determine the value of the outcomes.
Inputs are itemized dollar resources invested in a college degree, including state support, federal support, parent salaries, student wages, family savings, and FAFSA (Free Application for Federal Student Aid) loans. Inputs could exceed $2 trillion. The $1.6 trillion student debt from the Fed’s consumer survey is a partial amount. Michael Nietzel reports that states added $112 billion to their state university systems. Sallie Mae estimated that in 2021, 44.7 percent of college costs were paid for by parent savings and income. Many students work part time while they are students and during time off from school; foundations provide grants to cover part of student costs.
Outputs, or the direct and tangible products from an activity, must be evaluated. An example is calculating the number of people trained by a program or considering the type of degree granted. Employees with skill-based degrees will be paid higher wages and are more likely to support college fundraising efforts and pay back loans. In 2021, a computer science bachelor’s degree led to starting wages of $70,000, while a sociology degree could command $56,750, though amounts fluctuate according to supply and demand.
Outcomes, or the changes to people and the benefits resulting from a program, are addressed by comparisons of subjective beliefs. Subjective judgments, referred to as fuzzy AHP, allow wide latitude to create rationalizations for continuing to ignore the issues. The distilling of these value questions defaults to the claim that “all degrees are good.”
Some have made a passionate plea to write off student loans by claiming the benefits of social ROI, an ill-determined concept supported by fuzzy subjective reasoning that does not consider the monetary value of different degree majors. Coupled with the aforementioned Venn diagram, it is easy to conclude that the proposed 2023 program is a net failure going forward. It uses tortuous logic to rationalize past receivables. The educational industrial complex is at a tipping point.
