Canceling Student Debt Won’t Fix the Real Injustice in Higher Education

The runaway inflation in the cost of higher education is disproportionate to the benefits it provides.

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The runaway inflation in the cost of higher education is disproportionate to the benefits it provides.

As Joe Biden inches closer to the desperate political ploy of “debt forgiveness,” the evidence that this regressive wealth transfer is ill-begotten is becoming clearer from his own administration’s caveats to the decision.

We have a massive student loan market because the federal government made a decision to subsidize such a thing many years ago, with no consideration for underwriting. The ability and propensity of a borrower to pay a loan back is the essence of market-based lending. In the case of the student loan market, social aims were to trump economic logic, and this was an explicitly intentional decision. In 2008 the country got to live through the grand finale of the other time the federal government made this decision at scale. And while the systemic risks in our student debt situation are not in the same universe as the housing collapse (the debt is with the taxpayer, not the credit markets and banking system), the folly of the federal government dismissing economic logic for social (or political) aims is again on full display.

Much has been written about the regressive nature of “canceling” student debt—of how the benefits in doing this accrue to the least unemployed and best compensated members of society. The data are unambiguous—very little student debt is held by the lower rungs of wage earners. The concept of a social safety net for the desperate and most disadvantaged never envisioned five-figure transfer payments to those who possess the most sociological, professional, and economic leverage in society.

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  1. Avatar photo
    Ben Connelly

    This was the single best explanation I have encountered yet on the student debt cancellation news and the larger issue of the education bubble.

    I’ll admit, that analogy to the housing bubble worries me. We don’t want to go through a similar economic crisis in the coming years if the education bubble collapses.

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  2. linda

    In my opinion public school and the university system has to be rethought. Why couldn't very bright tech kids so into some kind of apprenticeship out of high school? Reading Chaucer has it's benefits but at these kinds of costs maybe not worth it.

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    1. Avatar photo
      Narwhal

      From President Washington’s first address to Congress:

      “Nor am I less persuaded, that you will agree with me in opinion, that there is nothing which can better deserve your patronage than the promotion of Science and Literature. Knowledge is in every country the surest basis of public happiness. In one in which the measures of Government receive their impression so immediately from the sense of the Community as in ours it is proportionably essential. To the security of a free Constitution it contributes in various ways: By convincing those who are intrusted with the public administration, that every valuable end of Government is best answered by the enlightened confidence of the people: and by teaching the people themselves to know and to value their own rights; to discern and provide against invasions of them; to distinguish between oppression and the necessary exercise of lawful authority; between burthens proceeding from a disregard to their convenience and those resulting from the inevitable exigencies of Society; to discriminate the spirit of Liberty from that of licentiousness, cherishing the first, avoiding the last, and uniting a speedy, but temperate vigilance against encroachments, with an inviolable respect to the Laws.”

      https://millercenter.org/the-presidency/presidential-speeches/january-8-1790-first-annual-message-congress

      John Adams to the Comte de Sarsfield:

      “It has ever been my hobby horse, to see rising in America an Empire of Liberty & a Prospect of two or three hundred Millions of freemen, without one noble or one King—among them—You say it is impossible—If I should agree with you in this, I would still say let us try the experiment and preserve our equality as long as we can—

      A better system of Education for the Common People, might preserve them long from such artificial inequalities, as are prejudicial to society by confounding the Natural distinctions of Right and Wrong, Virtue and vice.”
      https://founders.archives.gov/?q=Education%20%20Author%3A%22Adams%2C%20John%22&s=1621311111&r=89

      John Adams to Matthew Robinson-Morris:

      “There is room to hope that man kind will one day arrive at a gread degree of perfection in the science and art of Government, when it shall no longer be thought a divine science, it will be pursued upon human Principles, When superstition & Imposture, shall cease to mislead— Common sense will come forward— when Authority shall be known to originate with the people instead of descending from the skies in Miracles and mistery, it will not be difficult to convince a Nation that its own good is its End— In short when Men shall study Government as they do Geometry, they will make improvements in it, as fast as they ever did in Painting, Statuary or Architecture— But before any great things are accomplished, a memorable change must, be made in the system of Education and knowledge must become so general as to raise the lower ranks of Society nearer to the higher The Education of a Nation, instead of being confined to a few schools & Universities, for the instruction of the few, must become the National Care and expence, for the information of the many,— it is odd that the Knowledge of Society which interests every man, should be the last to receive improvements.”

      https://founders.archives.gov/?q=Education%20%20Author%3A%22Adams%2C%20John%22&s=1621311111&r=129

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  3. Kurt Von Fuchs

    I largely agree with your points very well written article. I'd like to focus on the numbers. The average high school teacher makes less than $65,000 a year. Teaching is one of the fundamental pillars of any society particularly any successful one. We need more teachers, particularly good teachers in underfunded schools. That forgiveness should be an option for a small specifically targeted group of people going to college. You're absolutely right people making between 90 and 150,000 are still making more money than 80% of all Americans they don't need debt forgiveness

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    1. Avatar photo
      Narwhal

      If I’m not mistaken there are already loan forgiveness programs for teachers who opt to teach at certain schools/in certain school districts/on certain subjects.

      Edit: https://studentaid.gov/manage-loans/forgiveness-cancellation/teacher
      https://www.aft.org/funding-database

      Teachers are a community and they have a union. So, they are already well aware of all of this even if many Americans aren’t.

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  4. Avatar photo
    Narwhal

    If the student debt forgiveness occurs then it will free up a lot of funds which can then be used as donations to political campaigns. I can’t be the first person who has realized this fact.

    Making two years of (accredited, non-profit) community or technical college tuition free to all Americans going forward makes more sense. Doing so would cost far less, avoids some potential resentments and moral hazards, and would produce greater returns for our economy, and perhaps our society.

    Edit: Two years at a full load or whatever number of credits are needed to graduate with an AA or AS, etc. if spread out over four total years of eligibility after beginning (Some can’t go to school full time due to scheduling conflicts). Or something like that.

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  5. Avatar photo
    Blogger Barbie

    Woo-hoo, I've made it. I'm in the lower middle class! I guess all the debt I had to take on to get my Masters' degree in order get there far was worth it! (Sorry, I mostly checked the article to find out where I fell in this hierarchy.)

    I do think the issue of how college got so overpriced really is the more important one. But since it is caused by governmental things--degree requirements for jobs (I kept hoping that they'd drop the degree on mine, but after eight years of scraping by at low levels hoping someone would say, "Your experience will count, especially with your undergrad degree," I finally had to give up on that and hope the better jobs would pay enough to keep up with the student loans), driving up the cost with incentives, etc--there is a legitimate question of whether or not they should do something about the predatory lending it encourages, whether by loan forgiveness or by actually taking steps to rein in the practice.

    I sometimes wonder, since undergrad degrees aren't worth the price of the paper they print diplomas on, if we should just add grades 13-16 in public schools. I just don't see the country culturally moving to lowering requirements, or de-emphasizing the importance of going to college to kids who are in the lower classes. It would be heard as trying to make college only available to kids who are already rich. It's a conundrum that we've gotten ourselves into, because the more people who have bachelors' degrees, the less they're worth, which means that a Masters becomes the sorting mechanism. It's stupid and pointless, but I don't see it changing any time soon, because it's become ingrained in the culture. And the colleges know it. They can just milk the terminal masters, which is required for a lot of service jobs like teaching and librarianship, for all they can get unless something is done.

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  6. Dan Currell

    Subsidized / public undergraduate borrowing is quite limited by law; Bahnsen never mentions that sticker (fake) prices are huge, but average costs for a BA or BS are not. Some schools are engaged in gouging; many are not. The opacity is a problem; the deliberate obfuscation of true cost is a moral and practical problem.

    Graduate degrees are where institutions take the most advantage of students and their families because government supported borrowing is effectively unlimited. The cost of graduate degrees isn’t the problem, since the cost of production is low. The issue is the price, which is another matter entirely.

    Buying behavior makes fixing any of this a lot more complicated than the piece suggests. Bundled, complex products like college have quality characteristics that are very hard to assess. Even far simpler products like law school revert to rankings and behave like positional goods. Colleges are much more complex still, which ensures that brand and price will both continue to be essential market signals: higher must be better. And that is in part a self-fulfilling prophecy.

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  7. Pohl

    Good article. I agree it is one of Biden’s most aggravating proposals.

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  8. Avatar photo
    Donny from Queens

    “The pending “cancellation” of student debt for those under a certain income limit speaks to this fatal flaw of the policy: that it benefits higher wage earners and is substantially paid by lower wage earners.”

    This is unsourced and is not true. Any cancellation would be “paid for” by the people who pay taxes. The bottom half of Americans pay nearly nothing in taxes. After generous credits, many cash out more than they paid in. Bahnsen has no problem discussing this fact when it’s tax cuts for corporations or the top earners.

    This is an extremely disingenuous and lazy argument coming from someone like him and from a publication like this.

    I don’t agree with blanket loan forgiveness, but I’m not prepared to create a narrative of falsehoods to argue against it.

    https://www.aplu.org/our-work/5-archived-projects/college-costs-tuition-and-financial-aid/publicuvalues/publicuvalues-resources/q4/GradsSociety.pdf

    The average college grad contributes over 1/4 of a million dollars more in taxes than non-college grads. Bahnsen, your claims are so wildly detached from reality that this is where being lazy can border on being negligently dishonest. Same goes for Jonah.

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  9. Avatar photo
    Bel

    I agree student loan debt cancellation is a terrible idea. One quibble; there is plenty of competition for higher education. What there isn’t, in many states, is enough slots at the flagship universities that turn away thousands of students with high GPAs and test scores. If I remember correctly, UGA received 40K applications last fall for ~4,000 slots. The average GPA of an incoming freshman is over a 4.0

    The trouble is more with decisions made by parents and students, who understandably if foolishly, opt to get a loan to go to an out of state or private school. It’s a catch 22 - if more students stayed in state at Tier II public schools, those schools would become more appealing and students would take on less debt. But few students want to be the ones to make the Tier II schools bigger players in education.

    Some students are making that choice, maybe over time it will snowball.

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  10. Avatar photo
    Donny from Queens

    Bahnsen: how is it “paid by lower wage earners” when they don’t pay nearly as much taxes? Every single time there’s a tax cut people like you are quick to point out that the bottom half of income earners don’t pay taxes. It smells like horse manure that suddenly you’re trotting out this notion that this is a wealth transfer from folks who don’t pay.

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    1. Avatar photo
      CynthiaW

      I agree that is a weak argument. 40% to 50% of American households don't pay Federal income tax. That makes the "unfairness" of college loan "forgiveness" not on them in the specific sense as taxpayers, at least on a snapshot basis.

      In the larger economic sense, inflation of education costs, inflation in general, it affects everyone, regardless of their Federal income tax payer status.

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      1. Avatar photo
        Donny from Queens

        Right. I don’t support blanket forgiveness, but their argument is so bad I had to comment.

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