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.
And, contrary to the vapid pronouncements of its proponents, forgiveness is a lousy way to stimulate the economy. Wiping away hundreds of billions in debt that isn’t due for many years will do little to impact short-term household finances or spur much spending today. For the millions struggling through a pandemic to keep a roof over their head and their bills up to date, student loan forgiveness is a scattershot and ineffectual way to provide relief. More important, this debt jubilee would leave the federal lending program intact. It would do nothing to address the issues that contribute to tuition inflation (for those not eligible for financial aid) and so the same purported problems advocates cite now would remain as future borrowers finance their studies.
This is the oddest sort of progressivism one can imagine. After all, it ineptly addresses the symptoms of runaway college costs (by disproportionately showering largesse on Ivy-trained law school grads) while doing nothing about the drivers of this purported “crisis”. Now, to be fair, progressives have sketched a grand scheme for “free college” (constructed from a tangle of federal subsidies, directives, and cost controls), but even that hot mess is wholly absent in the loan jubilee discussion. The plans for “free college” cover undergraduate tuition at public institutions, while the bulk of borrowing—which is done for the sake of attending private schools or obtaining graduate degrees—would continue.
And the kinds of reforms that could actually reduce borrowing—such as federal support for the growth of faster, more agile post-secondary options or a commitment to revisiting federal employment law provisions which encourage credential inflation—aren’t garnering even glancing interest among those pushing this giveaway.
Whether the Biden administration actually has the executive authority to wipe out large swaths of student debt is an open question. There is certainly language in federal statute that gives the secretary of education the authority to “waive, or release any right, title, claim, lien, or demand, however acquired.” But it has long been understood that the purpose of that flexibility was to allow for narrow, targeted relief in exceptional circumstances. Indeed, elsewhere in federal law, agencies are instructed to “try to collect” the debts they are owed. If the Biden administration were to use this vague grant of discretion to give away staggering sums via executive action, it’s unclear how it would all play out in practice and in the courts—though it’s pretty clear it would spell a quick end to musing about a possible new era of bipartisan lawmaking.
Now, while criticisms of the logic and design of the student debt forgiveness are all appropriate, they really don’t get at the heart of what makes this proposal so troubling: That it represents a casual assault on the foundational virtues that sustain American prosperity and comity.
The compact that undergirds any form of lending—but especially public lending—presumes that borrowers are taking responsibility for their choices. Typically, that means borrowing no more than is absolutely necessary, borrowing to meet needs rather than wants, and making good-faith efforts to repay in full. That kind of behavior fuels a virtuous cycle of civic trust.
Proposals for sweeping loan forgiveness shatter that compact in every possible way. Those who chose to attend cheaper colleges will realize they left free money on the table, compared to those who disregarded such concerns and borrowed big. Those who waitressed during college, worked nights, started out at community college, or scrimped and saved in order to minimize their borrowing wind up feeling like suckers. Those who hustled to repay their loans wind up feeling like chumps.
Even if Biden decides he’s got more sensible fights to pick, the mere fact that there’s a sizable constituency for this stuff can encourage borrowers to make bad choices while making discipline and delayed gratification feel like a sucker’s bet.
The irony is that many of the groups spearheading this effort go to great lengths to present themselves as defenders of the poor, the marginalized, and the working class. Yet, they’ve managed to offer a plan that instead rewards graduates of law schools and elite colleges—in other words, the kinds of people who staff these organizations rather than the Americans they claim to represent.
This all provides an important, early test for President-elect Biden. He’s a leader who campaigned as the champion of those who, in President Bill Clinton’s elegant phrasing, “work hard and play by the rules.” He’s been presented here with a proposal to reward irresponsible borrowers and teach that playing by the rules is for suckers. How he fares on this test will say much about what’s to come.
Photograph by College of DuPage/Flickr.