Free College and the Debt-Free Fantasy

At the end of 2019, 43 million Americans owed over $1.5 trillion in federal student loans. The rapid increase in these balances over the past decade has led many to deem student debt a "crisis." Now, there is growing support among Democratic policymakers, and even some Republicans, to immediately cancel all or most of the federal government's loan portfolio. Often, these advocates also propose making public colleges and universities tuition free, since student debt cancellation would affect only existing borrowers. Otherwise, students would continue to take out new loans to finance their education going forward. Indeed, the Congressional Budget Office projects that the federal government will issue over $1.2 trillion in new student debt over the coming decade. The combination of debt cancellation and free tuition at public colleges is supposed to end the student loan "crisis" once and for all. Despite these claims, making colleges and universities tuition free would have only a limited effect on student borrowing. The analysis suggests that the majority of student borrowing today would continue under the free-college proposals. Even after the government forgives nearly all outstanding debt, total balances will quickly reach levels that policymakers have deemed a crisis. In short, the proposals fall far short of guaranteeing that students will graduate debt-free as proponents claim, at least absent other large increases in grant aid. This is because free-college policies do not target the largest sources of student borrowing. Many students borrow to attend private undergraduate institutions and graduate schools, which are excluded under free-college proposals. Moreover, many students attend out-of-state public universities and are not eligible for free-college policies under the most prominent proposals. All these ineligible students may continue to borrow through the federal loan program. Even among those eligible for free college, many students borrow to cover non-tuition expenses such as housing, food, and textbooks while enrolled (hereafter referred to as "living expenses"). The free-college plans cover tuition only, which means that much of the borrowing for living expenses will continue, even if tuition is free and the federal Pell Grant is repurposed to cover living expenses, as many free-college policies propose. After taking these factors into account, the analysis suggests that a federal free-college matching grant for states such as that proposed