Taxpayers Shouldn’t Bankroll Degrees that Don’t Pay
American higher education has become one of the many products that gets more expensive the more the government helps you buy it. Since the turn of the century, average tuition has climbed roughly 157 percent, far outrunning inflation. Meanwhile, of the 53,000 degree and certificate programs nationally, roughly 31 percent of students are enrolled in programs that are a losing bet financially. Washington’s answer is the new Student Tuition and Transparency System (STATS), an earnings-based accountability regime created under the One Big Beautiful Bill. It is a welcome admission that many degrees are financial quicksand, but it dodges the fundamental problem that prices in higher education stopped being honest the moment the government started guaranteeing the checks.
The federal government waded into student lending with the National Defense Education Act of 1958 and dove in headfirst with the Higher Education Act of 1965, guaranteeing and eventually directly issuing loans. The theory behind increasing access to higher education was noble. The practice, however, is a regressive transfer. Taxpayers, including the majority of American adults who never earned a bachelor’s degree, backstop the tuition bills of the credentialed class.
The story starts with undergraduates, where the average annual tuition for a public four-year school was $1,888 in 1990. It has since grown at rates that make the consumer price index look tame, with college prices rising 41.7 percent faster than inflation this century. Economists have found that the mechanism works in the following way. Expanded federal credit results in schools raising prices roughly 64 cents for every dollar of increased federal aid, with institutions capturing the money. The result is a $1.7 trillion federal loan portfolio riddled with rising delinquency and default, propping up programs where nearly a quarter of bachelor’s degrees produce a negative return on investment.
Graduate school is where the experiment ran wildest. In 2006, Washington launched Grad PLUS, a federal direct loan program that let students borrow the full cost of attendance, whatever a school dared to charge. Median graduate tuition promptly tripled, median borrower debt climbed to over $57,000, and many master’s programs now leave students financially worse off than if they had skipped the diploma entirely.
Enter STATS, finalized on July 1 and taking effect in July 2027. It requires almost every federally funded program to report costs and outcomes to a public database, and it cuts off federal loans to undergraduate programs whose graduates cannot out-earn a typical high school diploma holder and graduate programs whose alumni cannot beat a typical bachelor’s holder, with the first programs losing eligibility as early as the 2028-29 school year.
The diagnosis is right, but the prescription of a new bureaucracy leaves a lot to be desired. According to the U.S. Department of Education’s regulatory impact analysis, only about 5 percent of the roughly 129,000 covered programs are projected to fail this lenient test, although the Department lacks comprehensive earnings data for 76 percent of them. Worse, hanging billions in eligibility on regulator-set benchmarks invites lobbying and capture; carve-outs for tipped occupations and other exemptions appeared before the rule even took effect, and the Department discreetly dropped the tougher debt-to-earnings metric that would have flunked thousands of overpriced programs. Every future administration now has dials to turn and every trade association has a reason to hire more lobbyists.
The fix is twofold. First, wind down the subsidies that broke the pricing relationship between buyer and seller. Second, restore normal bankruptcy discharge to student loans, the one form of consumer debt that is nearly impossible to escape. That legal quirk is precisely why nobody ever scrutinizes a student borrower the way they would a mortgage applicant. Walk into a bank for a car loan, and the first thing they’ll ask is whether you can repay it—and they’ll expect you to prove it. Walk into a financial aid office, and the only question is the sticker price. Yet not all degrees carry the same earning power. Borrowing $100,000 for electrical engineering is a fundamentally different proposition than borrowing $100,000 for sociology, and a rational lender bearing real risk would price them differently, demand justification, and almost certainly decline the latter.
Degrees that don’t pay simply can’t get financed at inflated prices, no federal scorecard, no appeals process, no negotiated rulemaking required. Once colleges lose the blank check, tuition rediscovers gravity, and the market for economically absurd credentials quietly dries up. Let lenders take real losses and the market will do what STATS pretends to do by underwriting loans based on the risk of the borrower. And if someone wants to pursue a master’s in puppetry or a degree in comedic arts, they should be free to do so—just not on the taxpayer’s dime.
