This post is adapted from remarks I delivered at a recent roundtable hosted by the House Select Committee on Economic Disparity and Fairness in Growth.
America is at a critical moment for education and workforce training. The Biden administration has, by executive fiat, chosen to forgive up to $20,000 per borrower in student loan debt, at a cost of $400 billion. The administration also will slash payments under income-driven repayment plans by half or more, which could add hundreds of billions of dollars to the cost of the plan.
These actions increase the implicit subsidy being given to traditional colleges and universities that derive their revenue from federal student loans. Research suggests that individuals on the new income-driven repayment plan might repay around half of what they borrowed, on average. And the possibility that future presidents might cancel more student debt by executive action will certainly increase willingness to borrow. In the long run, these policies will exacerbate the upward pressure on the cost of college.
But there’s a deeper admission implicit in the student loan cancellation announcement. If student loans have become a big enough crisis that $400 billion worth of loan forgiveness is warranted, that suggests that the nation’s colleges and universities have failed to deliver the reliable return on investment they have promised.
It’s certainly true that people with bachelor’s degrees and advanced degrees tend to be better off than the average American. But the return on investment on a four-year degree varies: someone who graduates with a bachelor’s degree in computer science or nursing will usually enjoy high earnings. They’ll be able to pay off their loans with interest.
But someone who gets a degree in psychology or anthropology may see little to no increase in earnings. And those who start college but don’t finish may end up worse off financially than if they had never enrolled at all.
However, many pathways to the middle class exist beyond the bachelor’s degree. An associate degree in nursing will provide a better return than most four-year degrees, and at a fraction of the cost. Certificate programs in vehicle maintenance and repair, licensed practical nursing, and precision metalworking also provide a reliable return on investment.
Apprenticeships are also a key avenue for upward mobility, and more students are taking advantage of them. The number of registered apprenticeships has risen 64 percent over the last ten years, and almost a quarter million people will begin an apprenticeship this year. The apprenticeship model has proven a promising way to prepare individuals for roles in construction, advanced manufacturing, and computer programming. One Harvard Business School study identified three million current job openings that could be filled via apprenticeship programs.
One of the biggest challenges to expanding pathways to the middle class beyond the bachelor’s degree is that the government has its thumb on the scales in favor of traditional colleges and universities. Traditional colleges have access to Pell Grants, federal student loans, tuition tax credits, direct state appropriations, tax-exempt endowments, and more. What sources of funding exist for noncollege pathways are limited and irregular. New subsidies for student loans will tilt the playing field even more.
The solution is to ensure that government support for postsecondary education and training does not unduly advantage one model over another. Programs with a proven track record of placing individuals into high-paying jobs should not lose out on funding opportunities simply because their model is nontraditional. Moreover, incumbent colleges and universities that fail to provide a reliable return on investment should not continue to enjoy unfettered access to federal aid programs.
As I wrote last year, there are several changes Congress could make to level the playing field between traditional colleges and apprenticeships:
Congress could allow student aid funds such as Pell Grants to be used for the classroom components to approved apprenticeships. Currently, this is only permissible if the apprentice is enrolled in an approved degree or certificate program offered by an accredited college. But the academic programs offered by colleges may not always align with apprentices’ training needs. If Congress allowed approved apprenticeships to count as eligible programs for the purposes of student aid, more private employers would find it worth their while to offer them.
Apprentices taking college classes are also eligible for federal work-study, a program that tops up the wages of college students who work while enrolled. But work-study funding is limited, and colleges which have received more funds in the past are at the front of the line for new allocations each year. This largely excludes the community colleges and trade schools that typically partner with apprenticeship providers. Changing the funding allocation rules to support these sorts of institutions instead could also buoy the apprenticeship sector.
As Congress considers how to support apprenticeships and other noncollege pathways to the middle class, it is important not to repeat the mistakes that the federal government made with traditional colleges and universities. Generous funding of traditional higher education with little attention to outcomes gave us the student loan crisis in the first place, as the government pushed easy-money loans without regard for the ability to repay.
Although apprenticeships deserve support, new federal funding should be limited to initiatives with proven track records of placing completers into well-paying jobs and to new providers who put some skin in the game to ensure positive participant outcomes.
As the student loan fiasco leads Americans to reconsider the value of traditional college education, policymakers should ensure that all forms of postsecondary education and training with strong economic outcomes have the opportunity to serve people seeking a path to the middle class.