Canceling student debt would be good for me, but I don’t really need it
President-elect Joe Biden is considering executive action on student debt relief in hopes of boosting the economy.
The idea is of great interest in Iowa, where tuition fees at public universities are expected to increase next year. According to the Institute for College Access and Success, the state ranks first nationally for the highest debt burden among college graduates, with nearly two-thirds of the Class of 2019 in Iowa having a debt over $ 30,000 on average.
America’s total student debt – $ 1.6 trillion, more than what we collectively owe for homes and cars – is a shocking number, but wiping it all out is not good policy.
Even by progressive standards, the cancellation of all students doesn’t really add up. It would be a boon for high and middle income Americans like me, not poor Americans. Most student debt is held by the top half of earners, and the bottom 20 percent of earners hold only 8 percent, according to a recent analysis by the left-wing People’s Policy Project.
And that should be little economic stimulus. Jason Furman, Chairman of the Obama-Era Council of Economic Advisers, recently wrote it “probably has a multiplier close to zero” since the amount remitted would be taxable income.
For several decades, state and federal governments have made it their mission to increase college enrollment, not to mention the expected costs and benefits. They make debt extremely easy, but very difficult to get out. Young adults can take out loans regardless of whether their study program is profitable, even if they attend sketchy colleges with undesirable degrees, but it is especially difficult to pay off student loans in bankruptcy.
US Senator Bernie Sanders, two-time Iowa Democratic Caucus finalist, campaigned to eliminate all student debt. US Senator Elizabeth Warren is calling for the forgiveness of most student debt, but would set limits on loan relief.
Biden is unlikely to accept either suggestion. This week he mentioned $ 10,000 in loan forgiveness, a fraction of the Warren plan. But he will have to face the pressure to go further.
A tight debt plan like Biden’s can be worth it. Relief should be targeted narrowly on people who have difficulty making payments, and not on the wealthy who do not need it.
People who took on little or no loan debt dropped out of post-secondary education or went to cheaper colleges, potentially limiting their earning potential for life. And people who have already paid off their debt have delayed major investments, such as starting a business or buying homes.
Many of them don’t like the idea of canceling loans. It is not because they are selfish or want others to be worse off; it is because they have made real sacrifices and they are considerably worse off, and they also want proportional compensation.
And what about the next generation of student debt holders and indebted taxpayers?
Student debt relief does nothing to control the skyrocketing cost of higher education, which exceeds inflation as measured by the consumer price index. Biden has other college affordability plans, but they focus on shifting costs to government rather than cutting costs. It’s like doing a pedicure while your foot is eaten away by flesh-eating bacteria.
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Senator Bernie Sanders, I-Vt., And former Vice President Joe Biden during a Democratic presidential primary debate on Tuesday, February 25, 2020, in Charleston, SC (AP Photo / Patrick Semansky)