The Price Is Not Right: Solving Student Debt Starts with Stopping Soaring Tuition Cost
On August 8, 2020, the former Secretary of Education renewed the suspension of student loans, stopped collections, and waived federal loan interest until the end of the year. The action taken by the federal government acknowledges that there is a problem but addresses only the immediate threat by providing temporary relief. In September, some senators called for the former President to cancel $50,000 of student borrower debt under the Higher Education Act, the effects of which would endure beyond the pandemic. However, both solutions are limited, as they fail to address the source of the student debt crisis: the precipitously increasing cost of higher education placing borrowers in a strenuous situation: paying off thousands of dollars in student loan debt for ages after graduation.
Part of the challenge of addressing the larger problem lies in the lack of consensus about what causes the price of higher education to increase. Bill Bennett, the Reagan Administration’s Secretary of Education, launched one prominent theory on why tuition prices continue to climb. Commonly known as the Bennett Hypothesis, Bill Bennett blamed colleges for exploiting federal financial aid expansions by raising tuition prices, believing the subsidies would“cushion the increase.” He criticized colleges for being greedy institutions unreasonably burdening taxpayers to pay “more than their fair share of the tuition burden.”
There has been continued debate of this theory since 1987 and scholars have even recently discovered empirical evidence in support of the Bennett Hypothesis. Researchers found that universities manipulate federal support by reducing institutional aid, i.e. scholarships, in proportion with anticipated education tax benefits. Other institutions, mainly for-profit colleges, who have a substantial population of students receiving Pell Grants, raise tuition to maximize the institution’s benefit of the aid, rather than the students’ benefits. This is particularly troubling because Pell Grants are intended to help the neediest students, and researchers estimated that 12% of all Pell Grant aid is passed through to schools.
Although there is support for the hypothesis, there are other relevant factors that must be considered as contributing to the increase of higher education cost. Between 2008 and 2018, on average, states spent 13% less per student, demonstrating that states have disinvested in higher education, forcing the cost onto students. This is different than the relationship between federal aid and tuition because there is not a dollar per dollar relationship between state funding cuts and tuition increases, but it likely shows that this is a contributing factor to increasing tuition costs.
There are likely a multitude of factors that play a role in the problem. These considerations show that understanding the context of the problem is relevant to finding a solution, suggesting that lawmakers and leaders should consider the bigger picture when addressing the student debt crisis. As public higher education costed, on average, $25,290 per year in 2020 for in-state students and tuition is expected to cost $44,047 per year in 2030, lawmakers can no longer hope that putting a band-aid on the crisis will help solve it.
This massive problem warrants a long-term solution. Some propose that the problem can be addressed by enacting legislation to restrict administrative bloat pervading universities. This solution would require Congress to pass a law that would calculate a student loan award and interest rate based on a sliding-scale analysis of ratio of administrators to full-time tenured faculty. However, the details would be very complex based on the needs of schools and specific programs. Others argue that the problem should be addressed by restricting loan access to students to keep tuition prices at pace with inflation, not higher than inflation rates. The argument rests on how student loan availability improperly reflects market realities, which enables colleges to raise tuition prices because they’re not constrained by the market. However, this market-based approach may exacerbate inequalities by restricting higher education access to those who may need it the most.
A solution that avoids some of these concerns, developed by Andrew Gillen, would change the Department of Education’s method of awarding student aid. Currently, financial aid is calculated based on cost of attendance, requiring an individual evaluation for each student. Gillen argues that changing this calculation to consider median cost of college, rather than cost of (actual) attendance, erases existing incentives for institutions to raise tuition because it may not be independently advantageous for a university.
Lawmakers and leaders should consider several advantages to this approach. The Median Cost of College analysis combats the Bennett Hypothesis because aid eligibility is determined without considering a student’s college choice, attenuating the link between increasing tuition and increasing aid. Further, students can know their financial aid eligibility before they apply to college. Currently, most students apply to college, fill out the FASFA application, and wait to determine the eligibility of aid, which may take up to fourteen days. With the Median Cost of College analysis, students could know their aid eligibility before applying to college, which may enable some students to consider their aid in deciding to apply to college. This scheme would treat colleges even-handedly and allow students to have equal access to financial aid rather than the current disproportionate aid provided to wealthy colleges with few needy students.
Lawmakers should consider a proposal like Gillen’s, as it addresses many concerns, has many advantages, and will not exacerbate inequality. This proposal eliminates incentivizing higher education tuition increases, although it may not strongly disincentivize it. It determines student aid eligibility during the front end of the application process rather than the back end, which may provide applicants a clearer vision of what is possible for them. This solution enables the students with the most need to get the most aid, better lending itself to the goal of providing financial assistance based on need.
About the Author: Annie Gilligan is a second-year student at Cornell Law School. Annie graduated from Rutgers University in 2018 where she studied History, Communication, and Labor Relations. This summer she interned with the District of New Jersey.
Suggested Citation: Annie Gilligan, The Price Is Not Right: Solving Student Debt Starts with Stopping Soaring Tuition Cost, Cornell J.L. & Pub. Pol’y: The Issue Spotter (Mar. 8, 2021), https://live-journal-of-law-and-public-policy.pantheonsite.io/the-price-is-not-right-solving-student-debt-starts-with-stopping-soaring-tuition-cost/.