Last week, I explained why I think free tuition isn’t on the horizon for most folks. Here, I’ll be a little more optimistic and present two policies that I think have a reasonable chance of passing and that would actually create some downward pressure on college tuition.
First, it is currently quite difficult for individual people to discharge student loan debt in bankruptcy and that should change. Here’s a summary of the situation from a 2022 Forbes article:
Student loans are treated differently in bankruptcy from other consumer debts, like medical bills and credit card debts. Under the bankruptcy code, student loan borrowers generally have to show that they have an “undue hardship” which is a challenging legal standard to meet. Federal statute does not expressly define in detail “undue hardship” actually means, so bankruptcy courts have established standards, rules and tests (which can vary by jurisdiction) to allow judges to make a determination. In many states, student loan borrowers must demonstrate that there is a “certainty of hopelessness” — an extremely difficult hurdle.
In other words, American law allows you dissolve debt in many cases, but singles out student loans as a class of debt that is way, way harder to discharge.
This law is a very bad idea. Why? Bankruptcy is great check on lenders. In a normal business loan, a bank must ask, “What is the chance this business will go under? What is the chance that we won’t get your money back because of bankruptcy?” As a result, lenders will place limits on the types of loans people could get because many college loans are simply not repaid. When I was a child, I was always surprised at how limited bank loans were for college students. It made sense. A lot of those loans weren’t paid back.
By making it unusually hard to apply normal bankruptcy practices, it sends a message to banks that says, “Go ahead, give this naive 18-year old kid $150,000. There is no risk. You’ll get it back and you’ll probably get years, or even decades, of interest payments.” This, in turn, gives colleges permission to jack up prices.
Already, the Biden administration has seen the error of this policy and they have a 2022 policy stating that the Department of Education will not oppose student loan discharge in bankruptcy court. Hopefully, Congress can see the wisdom of reverting to the pre-1976 policy of treating student loan debt like any other debt, and thus create a normal market pressure against tuition hikes.
Second, we can reduce the number of jobs that require a college or graduate degree. One of the big problems in America is that many jobs use college degrees as a sorting mechanism for job applicants. To be honest, there are very few jobs that genuinely require a college degree or graduate degree. For example, most business jobs do not need a four year degree, yet we ask for MBA’s and all kinds of other degrees. Look throughout the economy and you’ll that you often need an expensive credential to perform a certain job.
The nice thing is you don’t need the President’s or Congress’ approval to enact this policy. Private businesses and local government agencies can simply decide to sort employees on other traits, like job experience. If you are afraid of dropping the college degree requirement, you can just downgrade (e.g., maybe move from 4-year college degree to a community college degree).
If this suggestion ever catches, it would be a simple and intuitive way to create downward pressure on college prices. When fewer people seek college credentials for jobs, colleges won’t be able to charge that much.
Bottom line: You can hope that colleges will reduce tuition out of the kindness of their hear, but it’s just better to enable policies that use market pressures to guide pricing.
Image Credit: Pixabay/justDIYteam
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Your second suggestion is as hand wavy as the "goodness of their heart" argument you are arguing against. Why would businesses stop requiring college degrees? Businesses have clearly found that a college degree is a good sorting mechanism for finding minimally competent people. Something else would need to replace that. What that is and how it would become dominant is super unclear.