EFFECTIVE TREATMENT FOR THE STUDENT DEBT CRISIS REQUIRES AN ACCURATE DIAGNOSIS

The thrust of our colleagues’ column on handling the problem of outstanding student debt through institutional accountability, borrowing limits, and extension of income-based repayment is only partially responsive to the causes of the student debt crisis. The central problem is that as demand for higher education increased, state support for public higher education declined. This put the private market for higher education at a distinct advantage, allowing the exploitation of some students by low-quality for-profit providers, and the exploitation of others via excessively high prices conflated with better quality. As a result, over time, a larger and more diverse population of students was pushed to take on federal student loans in order to finance their increasingly extensive and expensive postsecondary education. Labor market credentialization is a key factor driving increased demand for college. It is no longer possible to reliably obtain stable labor market status without at least some form of higher education. Employers have shifted the cost of training and qualifying onto workers, to be paid for with student debt. As demand for higher education credentials filtered to an increasingly nontraditional population, in terms of age, race, and family background, reliance on debt shifted from a marginal experience to a central one. While student debt used to be primarily held by graduates of expensive and elite professional programs, it is now held by a much broader group of people, including those who did not complete or even attend college. With that shifting identity came shifting economics: having student debt was once a mark of relative privilege; now it is a mark of disadvantage. Correspondingly, the perceived “pathologies” of non-repayment, default, and other forms of credit market distress have become more prevalent. Looney and Yannelis focus on one aspect of credentialization: the expansion of for-profit institutions. Public institutions have long been constrained by inadequate levels of funding, even before the Great Recession. This led them to be less nimble at serving historically underserved populations, but over time those funding cuts pushed them to become increasingly entrepreneurial—even adopting practices for which the for-profit colleges are rightly criticized. It is a bit ironic that the authors refer to “an emerging empirical consensus . . . that institutions themselves are responsible for the success or failure of their students—not the demographics or socioeconomic status of their students” without acknowledging the role of structural changes in the economics of higher education. Their claim is without much merit. Of the four studies they cite to buttress it, only the paper by Zimmerman (2014) even purports to establish a causal relationship between higher education and student outcomes. And, contrary to the way the authors characterize that study, it does not document heterogeneity among institutions, since it focuses on admission to a single institution. One study the authors cite elsewhere, Hickman and Mountjoy (2020), actually demonstrates the opposite—homogeneity among the causal effects of admission to a range of institutions in Texas, taking selection into account. The crucial fact of the student debt