I have yet to see any shred of evidence to support this proposition, but some posters here repeat it ad nauseum . . . perhaps because it’s a favorite talking point of some ideologically driven radio commentator?
It makes no sense. The price leaders in higher education are elite private colleges and universities that derive very little tuition revenue from federal loans. According to US Department of Education figures, only 3% of Harvard students take out federal loans, and the “typical” Harvard student who borrows takes on $6,000 in debt by graduation. That’s about 2.5% of the total sticker price of a Harvard education, and since only 3% of Harvard students borrow, it represents about 75/1000ths of 1% of the total cost of a Harvard education for a typical Harvard class. In short, it’s beyond trivial.
I realize the numbers are different for other institutions, but other elite privates are trying to keep up with Harvard, and the elite publics are trying to keep up with the elite privates, and less-elite publics are trying to keep up with the elite publics, and so on. It’s student (and parent) demand for ever-increasing levels of services and amenities that’s driving up the cost of college education. Not federal loans.
Even where more students borrow, federal loans represent a fairly small fraction of the costs of higher education. At my public flagship, the University of Minnesota, for example, 45% of students take out federal loans, and those who do borrow graduate with a “typical” debt of $21,500. Those are substantial numbers, but $21,500 represents about 20% of the total COA of a 4-year education for an in-state student (less for an OOS student), and since only 45% borrow, that means federal loans account for, at most, 9% of the cost of a college education at Minnesota for a typical entering class. So there’s no conceivable way federal loans could account for more than 9% of the cost of a college education at Minnesota. And it’s probably a lot less. Take away that 9% by ending federal loans, and what happens? Well, some students (or their parents) would borrow on the private market that would re-emerge to fill the void left by the loss of federal loans, and end up with higher costs because unlike the federal government, the private lenders need to make a profit… Some students would take more time off to work, lowering 4- and 6-year graduation rates. Some low- and moderate-income students might seek less expensive alternatives, and that, in turn, might compel the university to lower its admission standards to fill its entering class. So who wins in that scenario? The university is weaker, both financially, and in graduation rates, and in the metrics of its entering class. The lower-income students who leave find cheaper but generally less desirable alternatives; they pay less, but they also get less, and probably on average their career earnings are less. The (generally more affluent) students who stay also get a bit less, because they have somewhat less credentialed classmates which could adversely affect the quality of what goes on in the classroom and also the perceived quality of a University of Minnesota degree; and if they borrow, they get that reduced value at higher cost. The only possible beneficiaries are a cohort of generally affluent but academically less qualified students who previously would have been denied admission but now are admitted because the university needs to replace the low- and moderate-income students who can no longer afford to attend. And for all that, we get what? Maybe at best a 1% or 2% reduction in average COA at the University of Minnesota?
That’s just a horribly bad bargain all around.
