Student-Loan Forgiveness Raises a Question About College

Jason Riley:

Economists call it the “fallacy of composition,” which is the assumption that what’s true for members of a group must also be true for the group as a whole. To use a popular example: It’s true that if someone stands up in a football stadium, that person will be able to see better. But it’s not true that if everyone stands up, everyone will have a better view.

Much public support for President Biden’s student-loan forgiveness plan rests on the same faulty logic. Just because some will benefit from a four-year degree in pay and choice of jobs, it doesn’t follow that everyone will. Yes, the student-debt problem stems from the dramatic rise in college costs in recent decades. But it’s also a function of too many young people who have little to gain from four more years of classroom instruction being tempted to take out loans and attend college anyway.

Tuition is about 20% of the total cost of attending college, and increases in tuition subsidies track closely with colleges raising their prices. In addition to being legally dubious and economically reckless, Mr. Biden’s debt-cancellation plan will create incentives for schools and potential borrowers alike to act in ways that exacerbate the problem. But the worst part might be that it will also encourage more young people to make poor decisions about their future.

The college-for-all advocates note that degree-holders tend to earn more, but as the economist Richard Vedder explains in his 2019 book on higher education, “Restoring the Promise,” first you must graduate, and 40% of the people who attend college don’t finish. Moreover, “college graduates with poor academic performance, graduating in the bottom quartile of their class, earn roughly the same after graduation as high school graduates.” These former college students must then pay back student debt with earnings equivalent to those of someone with only a high-school diploma.