If President-elect Joe Biden follows through on his campaign promise to forgive student loans to many borrowers, he’ll be checking off an important box for his political constituency. As a boost to the struggling U.S. economy, however, the move may not have much impact and will draw substantial opposition early in his presidency. What to do about the burgeoning $1.6 trillion in education debt has been a nagging question for government officials. Fully half of the debt has piled up over the past decade, when effective nationalization of the process opened a floodgate of tuition increases and college loans that left many graduates struggling to pay bills, buy homes and raise families. The most likely path Biden will follow is a $10,000 forgiveness plan at a time when the average burden per graduate is just shy of $30,000. That would provide an aggregate savings of more than $400 billion, according to many estimates.
But in doing so, it would raise a series of thorny questions that the new administration may have a hard time answering. Among them are issues over wealth inequality, given that higher-income borrowers owe a larger share, moral hazard of wiping out loans to a select group, and whether forgiveness is even the most effective way to address the issue.
Providing outright debt relief raises the question of, “Do we really want to subsidize tuitions? That’s what you’re doing. You’re giving money to students to give to universities that raised the tuition … and it doesn’t really help anybody.” There also will be general political backlash on moral hazard grounds from those who see folly in rewarding students for racking up huge debts they couldn’t afford to colleges that took advantage of government largesse to jack up costs. Government has allowed universities to go on this crazy trajectory of increasing their costs without any additional benefit to students. Colleges bear a lot of the responsibility, and they have basically been taking the dollars facilitated by government in a predatory way. We have to move away from governments picking winners and losers. The government shouldn’t be doing that, and it’s not fair to have people who decided not to go to college, whether it’s directly or indirectly, bearing the burden for the situation they had no role in causing.
Besides the cost, the student loan forgiveness proposed by Biden and others suffers from three major flaws: It’s not targeted to help the people most in need; it wouldn’t help the economy; and it wouldn’t solve the massive underlying problem. Progressives are pushing this remedy despite the inescapable fact that bailing out people with college educations is the opposite of progressive, given that more education generally yields more income. Student loan forgiveness does nothing for Americans whose education ended with high school. Another element of unfairness is that the erasure would deliver a lump of coal to borrowers who diligently discharged their obligations. Many of them would legitimately resent having made sacrifices that others will be spared.
We can deduce this from the $1,200 stimulus checks sent out this year to Americans largely without regard to need. Only about 40% of that money actually got spent, partly because so much went to the well-to-do. Which brings me to the politics. Most Americans, especially most poor Americans, don’t have student debt, because most of them didn’t go to college in the first place. Moreover, most people who did go to college have no or very little student debt. Despite what you may have heard about the student debt crisis, only 6% of borrowers owe more than $100,000. Virtually all of them borrowed so much because they attended graduate school.
You can argue that people who choose to get graduate degrees — including many young doctors, lawyers and engineers in training — deserve relief. But do they deserve help more than truck drivers, mechanics or short-order cooks? Heck, do they deserve relief more than the doctors, lawyers and engineers who chose to pay off their loans?
One reason teachers unions — a huge source of donations and political organizing for the Democratic Party — want loan forgiveness is that teachers and administrators can boost their pay by going back to school to get advanced degrees. Other municipal and federal workers — another major constituency for Democrats — have similar rules. The popularity of this idea stems from the fact that the Democratic Party has increasingly become the party of educated professionals, as the GOP has become more working-class. Lots of poor people are still Democrats, but they aren’t a major source of power within the party — the bureaucrats claiming to speak for them are. And that’s who Democrats are prioritizing.
So how come taxpayers are stuck with the tab? Don’t let the label “free college” fool you. Someone will be picking up the bill. Maybe most people can stomach the idea of paying taxes for bridges and roads. But those people would probably draw the line at paying other people’s tuition bills.
I’ve been lectured by President Obama and countless millionaire celebs with private jets and 400-foot yachts that I need to pay my “fair share.” Well, maybe it is time for our revered institutions to pay theirs. They can certainly afford it more than the rest of us.
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