Having our burdens wiped away sounds pretty nice. Wouldn’t we all love for someone else to pay our mortgage or perhaps our Christmastime credit card bill? But at the end of the day, any scheme to make total strangers pay my bills doesn’t seem remotely fair.
The same could be said for student loan debt. Student loan debt has been mounting due in part to federal policies and universities eager to gobble-up federal subsidies. But no one makes someone take out a student loan, and loan forgiveness makes innocent bystanders pay the price. Forcing others to pay for someone’s college education is inequitable and unjust. Moreover, it would merely provide a band-aid to the problem of hemorrhaging education costs.
The vast majority of Americans do not currently hold bachelor’s degrees. Many of those Americans chose to pursue a different path, deciding to pass on higher education altogether. Whatever the reason may be, those two-thirds of Americans have nothing to do with the student loan debt of those who did complete their degrees (and are presumably higher-earners). Yet some are suggesting that they, as American taxpayers, should pay off student loans taken out by others.
For this reason, student loan debt forgiveness may be the most regressive policy ever proposed by progressive policymakers.
A new working paper from Wharton economist Sylvian Catherine and the University of Chicago’s Constantine Yannelis finds that full cancelation of student loans would distribute $192 billion to the top 20% of income earners, while the bottom 20% would receive only $29 billion. As Catherine put it, “Outstanding student debt is inversely correlated with economic hardship, so it is difficult to design a forgiveness policy that does not accentuate inequality.”
Ultimately, student loan forgiveness would disproportionately benefit higher-income individuals as well as colleges and universities. Institutions of higher education currently have no incentive to keep costs low, due to the easy availability of loans through the federal student loan program. This likely explains why college tuition has skyrocketed in recent decades.
It would also create a moral hazard. If lawmakers force taxpayers to pay off the student loans of current borrowers, it would (absent a zeroing out of the federal student loan program) only encourage future students to borrow more, with the expectation that they, too, can ride another wave of forgiveness. Inflationary pressure on tuition prices would explode.
And yet, one sympathizes with students who are struggling to pay off their student loans, particularly during the COVID-19-era economy. The solution, however, would be to turn to the real culprits here: profligate universities and bad federal policies.
As for the universities, it is reasonable to assume that—if a student graduates with a bachelor’s degree yet is unable to find a job adequate to pay off his or her student loans—the university has failed that student. It has not delivered value equal to the tuition dollar.
Some in Congress are interested in requiring universities to pay a portion of student loan defaults. This policy means that schools would have some skin in the game and would be held accountable for the quality of the product they produce.
When it comes to federal policy, it remains clear that the federal student loan program must be eliminated—or at the very least significantly capped—in order to drive down college costs. “Skin in the game” proposals, as well as returning student loans to the private lending market, is a far better solution than giving large-scale student loan forgiveness to what are generally well-off graduates.
This piece originally appeared in The Philadelphia Inquirer