President-elect Biden is still more than two months from assuming office, but the socialist wing of the Democratic Party is already leaning on him to tear off his moderate coloration and reveal himself an ally of campus radicals. Last week, more than 200 progressive organizations—including the major teacher unions, the Education Trust, National Urban League, Young Invincibles, and Greenpeace—issued a letter calling on Biden to take executive action to unilaterally “cancel federal student debt on Day One” of his presidency, wiping out the $1.6 trillion in debt that borrowers owe to U.S. taxpayers.
This is an awful idea, and not just because the projected cost is astronomical. If one were going to spend $1 trillion or more, one might imagine trying to direct it to hard-hit communities, families, and businesses. Instead, such a move would disproportionately benefit affluent families, since working class and low income households are much less likely to have attended college at all, or to have borrowed heavily to attend pricey schools. Indeed, more than 40 percent of student debt was accumulated during graduate study by doctors, lawyers, and other professionals in pursuit of lucrative credentials.
Meanwhile, as I observed for The Dispatch back in September, it’s unclear just what problem this massive giveaway is intended to solve. For low- and middle-income students, generous financial aid policies mean that inflation-adjusted net annual tuition increased less than $600 between 1996 and 2016. As for loans, in a 2014 Brookings Institution analysis, researchers Beth Akers and Matt Chingos found, since 1992, the median borrower has consistently spent about 4 percent of monthly income repaying student loans. In a 2019 analysis of millennial households, Akers updated the numbers and calculated that the 4 percent rate still held.
Median student debt is about $17,000. In other words, for the vast majority of borrowers, loans may be an annoyance—but they’re not a major obligation. Given that college graduates enjoy a big boost to lifetime earnings, often estimated to be about $1 million over the course of one’s working life, these policies seem geared to transfer huge sums to the Americans with the best financial prospects. There are some borrowers who are in dire straits due to specific circumstances, especially in the midst of a pandemic, but the sensible solution is to provide them with targeted relief.