President Biden’s student loan forgiveness executive action has revealed both the crude self-interest of progressive politics and the policy fecklessness of the Republican Party.
America’s growing progressive movement has increasingly defined itself as champions of poor families held back by an economic system rigged for inequality. Framing politics as a battle of “the people versus the powerful,” progressives demand that government direct more resources toward working class and poor families. However, as working-class families have drifted rightward, and the professional class has moved leftward, progressive priorities have accordingly shifted to their new coastal, upwardly-mobile voter base. Much of the Democrats’ legislative push against the 2017 tax cuts has focused on restoring the full state-and-local tax (SALT) deduction that overwhelmingly benefits high-income coastal families. The American Rescue Plan spent heavily on rebates to upper-middle-class families that had suffered no pandemic income losses. The recent (and misnamed) Inflation Reduction Act spent most of its resources on climate policies that are championed largely by progressive students and professionals.
And now, President Biden wants to spend as much as $600 billion providing student loan bailouts as large as $40,000 to families earning as much as $250,000 annually. This is a pure redistribution from the working class to wealthier college graduates. Two-thirds of millennials carry no student debt because they did not attend college or were able to avoid loans. Of those who did borrow, the typical student graduated with a $30,000 student loan for a bachelor’s degree that will raise average lifetime incomes anywhere from $1 million to $2.8 million (although these returns vary widely with the major). At a 4 percent interest rate, those typical loans require monthly payments of $182 for 20 years, or approximately 4 percent of the typical earnings. Only 6 percent of student borrowers take out more than $100,000 in loans, and they are heavily concentrated in law school and medical school.
If Washington is looking to spend $600 billion to alleviate economic hardship, it is baffling to target upwardly mobile college graduates. Nearly half of all student loan debt is held by individuals with graduate degrees—including doctors, attorneys, and MBA business executives—who borrowed as an investment in high future incomes that make the debt affordable.