Forgive Student Loan Debt? A clumsy idea
First of all, a confession. My kids didn’t need to borrow money to go to college. Neither have my grandchildren. And I was able to manage during the day with the GI Bill and work as a construction worker twenty hours a week. So I don’t have personal experience with student loans that might make me more supportive of the idea that about $ 1 trillion of the estimated $ 1.7 trillion owed to the federal government should simply be wiped off the books by forgiving. up to $ 50,000 of principal owed by each borrower. This would totally wipe out student loans for 80% of all debtors, or about 35 million people.
The political advantages are obvious. With a few trillion dollars in deficit spending in the Biden COVID stimulus package on top of the few trillion dollars already spent, plus a few more trillion dollars in spending proposed in Biden’s next infrastructure plan, than another trillion is doing Does money matter if it makes so many potential voters happy?
And there is the virtue of simplicity. All a student loan cancellation takes is a journal entry: wait a minute the government has an asset on its balance sheet, and the student loan debtor has a liability on theirs, and then – poof – the two are gone, adding just another dollop of red ink. to the ocean of red ink that is the national debt. Easy peasy.
Politics aside, however, the political justifications for blanket student loan cancellation are questionable. The supporting arguments of leading progressives such as Sen. Bernie Sanders and Elizabeth Warren and Representative Alexandria Ocasio-Cortez fall into two broad categories: economic stimulation and social justice.
The economic argument is that canceling student loans would be a boon to the COVID-stricken economy as it would boost consumer spending. Particular emphasis is placed on the idea that canceling student loans would allow millennials to buy a home, which a sluggish job market and stagnant wages have discouraged them from doing.
Valid objectives of course, but the effectiveness of the means proposed to achieve the desired objectives is questionable. Isn’t it likely that increases in disposable income resulting from student loan cancellation in addition to COVID-related cash payments will be used in whole or in part to pay off other debt or saved instead of a increased spending? And while canceling student loans may improve individual balance sheets slightly (marginally, as one-third of all student loan debtors owe less than $ 10.0000), making mortgage eligibility progressively more possible, it does would not contribute in any way to the substantial investment required. to secure this loan. (I’m leaving aside the introductory question of why the federal government should make a special effort to help an accountant buy a house, but not a waitress.)
When it comes to social justice, student loan debtors are, as might be expected, disproportionately from families of modest means, especially in terms of accumulated wealth, and they are disproportionately people of color. . Overall, the forgiveness of student loans would be a step towards racial equality in wealth accumulation that advocates of wealth accumulation claim.
Perhaps. But it is an extremely brutal tool to achieve this goal. The clear majority of beneficiaries would not be poorer people of color. This majority would be made up of middle and upper class whites. The Ivy League graduate working on Wall Street would receive the same windfall as the historically black college graduate teaching at a Title I school.
And there is the issue of fundamental fairness. Is student loan cancellation anyway fair for those who worked and sacrificed to repay their loans, or for those who chose not to go to college because they could not afford? allow it and didn’t want to go into debt, they might be unable to get it paid off? This does not appear to be the case at first glance. Or the second blush.
Then there is the fact that in all areas student loan forgiveness is a one-size-fits-all solution, not a long-term solution to the problem of the high cost of higher education. How will canceling student loans accumulated this year help a student next year who cannot afford to go to college without borrowing against her future?
Another $ 1 trillion in national debt. Questionable public benefits. One size for all hams. Inherent inequity. No solution to the underlying problem. All in all, a perfect recipe for bad policy.
Mac Stipanovich was the chief of staff to former Florida Governor Bob Martinez and a longtime Republican strategist who is currently registered without party affiliation.