U.S. college financing remains unaddressed and unsolved

In a recent tweet, a prominent figure has questioned the current approach to financing American higher education, particularly in the context of President Joe Biden's student debt cancellation plan.

For decades, the strategy in the U.S. has been to limit the supply of college seats while using subsidized loans to pump up demand for those limited spots. This approach, according to the tweet, has led to the overpricing of higher education, a problem that remains unaddressed by student debt cancellation.

The tweet does not mention the distribution of benefits from student debt cancellation, such as the fact that most of the money is expected to go to the middle class. However, the benefits of debt cancellation for job mobility, geographic mobility, and upward mobility are undeniable.

President Biden has announced plans to forgive student loans of up to $20,000 for Pell Grant recipients and $10,000 for others making up to $125,000 a year. The total expected cost of this debt cancellation is estimated at $300 billion. This cost, the tweet suggests, is comparable to all of the tax hikes in the Inflation Reduction Act and the total amount spent on climate change and the energy transition.

The speaker in the tweet also expressed concern about the potential impact of student debt cancellation on inflation and the economy. Canceling student debt now is considered an inflationary policy, a concern that is heightened by the ongoing threat of inflation, which has not been decisively defeated yet and still poses a significant threat to Democrats' election chances in 2024.

Four years ago, the speaker was a vocal advocate for a one-time student debt forgiveness when inflation was low. Now, the speaker suggests that student debt cancellation should have been delayed until 2023 or 2024, a proposal that implies a need to reconsider the approach to higher education funding.

The tweet also raises concerns about a perverse incentive, known as moral hazard, that will be exacerbated by universal student debt cancellation. Masters programs may raise tuition and tell prospective students not to worry about it because the debt will be cancelled down the road, creating a potentially harmful incentive.

The Brookings Institution has proposed a solution to address the deep pathologies in the financing of American higher education by reforming student loan incentives and preventing the overpricing of higher education. This proposal suggests a shift away from subsidizing demand and towards restricting supply, an approach that the tweet implies should be considered in the ongoing debate about higher education funding.

In conclusion, the tweet raises valid concerns about the current approach to student debt cancellation and the financing of American higher education. While the benefits of debt cancellation for job mobility, geographic mobility, and upward mobility are clear, the tweet suggests that a more fundamental reevaluation of the way America finances undergraduate education is necessary to address the deeper issues at hand.