Canceling student debt: Point/counterpoint

Published 3:22 pm Monday, December 28, 2020

Point: Canceling student debt by presidential decree is wrong on many levels

By Neal McCluskey

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If you lent someone money to start a business that made big bucks, you would expect to be repaid, right? You took a risk and the borrower profited. Federal student lending is kind of like that, only you did not choose to lend, and now there is a movement to let the borrower just keep the money — through presidential decree, no less.

Senators Chuck Schumer and Elizabeth Warren are leading a call for the incoming Joe Biden administration to cancel huge amounts of federal student debt, which is close to all student debt since the federal government — read: the taxpayer — is by far the biggest supplier of student loans. Schumer and Warren have sponsored a resolution calling for up to $50,000 in loan cancellation for an open-ended number of federal student debtors, though Schumer has subsequently mentioned capping eligibility at income of $125,000, which would exclude only about the top 10 percent of earners.

This would be terrible policy on numerous levels.

First, it would be patently unfair. Having debt can be difficult, but why should anyone get to take your money, profit off it, and not at least make you whole again?

And yes, borrowers typically profit. The average bachelor’s degree holder earns roughly $1 million more over their lifetime than the average person whose education ended with a high school diploma. Go beyond a bachelor’s degree — which is what a lot of student loans are for — and the payoff is even bigger, with someone holding a professional degree, such as in law or medicine, making about $2.3 million more over their lifetime. Meanwhile, the debt of the average federal student borrower is around $36,500. Appreciable, but small compared to the payoff.

Borrowers also tend to be people who started life pretty well off. The large majority of student debt — 63 percent as of 2016— is held by people in the top half of the income distribution. The wealthiest 25 percent of Americans hold 34 percent of the debt.

The numbers make it clear that mass student-loan cancelation would largely help the well-to-do. But wouldn’t it be an economic stimulus, especially valuable in these COVID-19 economic times?

The Schumer-Warren resolution touts it as such but ignores a big problem: The feds have budgeted based on loans being repaid. If they are not, someone else will have to make up for lost federal revenue. So while cancellation would put an extra $250 or so in the average borrower’s pocket each month, it would require someone else to curtail their own spending or investment to send more money to Washington.

So long, stimulus.

Meanwhile, the people most hurt by COVID-19 and its economic effects are not those with college degrees. It is people without them, working in jobs that cannot be done in the remote comfort and safety of, say, one’s basement. The restaurant worker needs help more than the accountant or lawyer. And, of course, the only thing that will end the COVID economic slow-down is the end of COVID-19 itself.

Mass cancellation would also be damaging higher education policy.

America’s Ivory Tower is an overwrought edifice, and forgiving student debt, far from solving rampant tuition inflation, or the spread of on-campus water parks, would only exacerbate such problems. By taking money from taxpayers and giving it to students, federal student aid has enabled colleges to charge higher prices, and often encouraged students to demand more expensive things that necessitate such prices. Mass cancellation would signal students to borrow even more — they won’t really have to repay it.

Finally, there is the matter of presidential diktat. There is an interesting debate to be had about whether current statutes allow an administration to declare almost all student debt forgiven. But even if doing so were technically legal, it would be an affront to democracy, in which the people, represented in Congress, should decide such hugely consequential matters as whether $1.6 trillion — with a “t” — in taxpayer money should be permanently handed over to borrowers.

Repaying debt can be difficult, but it is the right thing to do. Having a president simply declare that profit-making graduates can keep what they borrowed is the opposite of that.
Neal McCluskey directs the Cato Institute’s Center for Educational Freedom and is co-editor of Unprofitable Schooling: Examining Causes of, and Fixes for, America’s Broken Ivory Tower.


Counterpoint: Canceling student debt would narrow the racial wealth gap and stimulate our economy

By Remington A. Gregg

President-elect Joe Biden has the power on day one as president to help close the racial wealth gap and stimulate the economy for a country on the brink of economic disaster by completely erasing student loan debt for all 45 million borrowers.

Student borrowers hold an eye-popping $1.6 trillion in debt — $1.37 trillion of which the federal government owns. Prior to the federal government suspending student loan payments as part of the spring coronavirus stimulus package, one person defaulted on their student loans every 26 seconds.

By 2021, borrowers are expected to hold $2 trillion in student debt. Millions of people struggle to pay for life necessities and meet their loan obligations. The coronavirus health and economic crisis has made the situation worse. As of last week, unemployment among African-Americans is almost double unemployment for Whites, and more than 8 million people fell into poverty since May.

Black and Latinx people are forced to borrow at higher rates and in larger amounts due to racial inequities in incomes and wealth. According to one study, 20 years after attending college, the median White borrower paid off 94 percent of their debt while the median Black borrower still owed 95 percent of theirs.

The reasons are simple: These borrowers must borrow more because they own less family wealth and are paid less after graduation, which makes it harder to pay back their loans. On his first day in office, by canceling student debt, Biden could close the Black-White wealth gap among families with student loans by 25 percent and the Latinx-White gap among borrowing families.

Opponents of student debt cancellation claim it would be a windfall for the most privileged, like doctors and lawyers, who hold a lot of student debt. But the data show the exact opposite. Those with the least debt are more likely to default on their loans.

For example, a person who left school before getting a degree because they couldn’t afford to continue their schooling or had too many family obligations, is still on the hook to repay their loans. Without a degree, those students often take low-wage jobs that make it impossible to afford repaying loans for a degree they never received.

Canceling student debt means that families will have more money to meet their basic needs, afford a car or save for retirement. Plus, it would allow those who have deferred getting married and having children an opportunity to do so. A recent study showed that Millennials are spending less than previous generations because they are poorer. One of many reasons for that lack of personal wealth: the weight of student loans.

Other opponents argue that it would cost too much to cancel student debt. According to recent analysis, the federal government stands to lose $435 billion of the $1.37 trillion of its student loan portfolio — meaning millions of people will default on those loans, endangering their personal credit histories.

Instead of further harming these struggling borrowers, we should stimulate our economy and tackle injustice by canceling the full $1.6 trillion student debt owed — including buying and forgiving privately held loans — and give these people a chance to build economic security for themselves and their families.

Finally, President Trump’s education secretary, Betsy DeVos, has argued that it would be unfair to those who already paid off their debt or never went to college to cancel student loans. But this completely misses the point that society works for the collective good. I have chosen not to have children, but I pay taxes to fund children’s nutrition programs, pre-K education and K-12 schools. Should I ask the government to refund my money? Of course not, because I am proudly contributing to making society better for everyone.

Canceling student debt not only would be a lifeline to 45 million people, some of whom are struggling under the weight of their debt, it would help build a more robust economy. It’s supported by a majority of Americans. And it makes good on the commitment so many leaders have made over the last year to focus on racial equity by working to close the racial wealth gap and giving Black and Brown borrowers a real chance to succeed.

However, in the end, Biden should do it because it’s the right thing to do.

Remington A. Gregg is counsel for civil justice and consumer rights at Public Citizen.