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America’s Higher-Education Financing Challenge

The Biden administration's plan to expand income-driven repayment options for student loans is a step in the right direction. But to address America's longstanding and increasingly burdensome higher-education financing challenge, Congress will need to do its part.

PRINCETON – Some 44 million Americans currently owe $1.6 trillion in student loan debt, and more than seven million of them were in default prior to the pandemic repayment pause. Since this crushing burden is associated with reduced homeownership, degraded credit ratings, and delayed marriage and child-bearing, lawmakers and advocates have pushed for blanket student loan forgiveness. However, a recent effort by the Biden administration to cancel $430 billion of student-loan debt was struck down by the Supreme Court as unconstitutional.

While much of the public focus has been on the Court’s ruling, a one-time loan cancelation was never going to be a lasting solution to the ongoing challenge of financing higher education in the United States. We still need to figure out how to help students invest in their education without saddling them with crushing debt in the first place. A critical step forward would be to replace the existing system with a standard repayment plan that aligns payments with a borrower’s ability to pay.

Funding for post-secondary education in the US comes from the public sector (state and local appropriations and federal grants and contracts) as well as from private gifts and contracts, with the remainder covered by student tuition and fees. But an underappreciated fact is that state and local contributions have not kept pace with the increase in cost. In 1980, tuition and fees paid by students represented only 13% of the cost of education at public institutions; by 2020, this share had risen to nearly 20%. Students and their families have increasingly borrowed to cover the cost.