How does one actually forgive debt?
The most straightforward way to get rid of debt is to pass legislation and appropriate money for the purpose. But with a likely Republican majority in the Senate, this route might not get far. As a result, many are hoping that Biden will do this unilaterally through an Executive Order, which is within his remit
provided the debt being forgiven is that issued by the federal government (i.e. excludes private lending). There are a bunch of questions associated with this – the main one being whether or not debt forgiven by such a method is tax-free or not (if not, recipients might find themselves on the end of a hefty bill next April, which might be quite unpopular).
What would the various plans cost?
A plan which gets rid of the first $10,000 would cost something on the order of $373 billion. Removing all debt would be in the range of $1.5 trillion. Preston Cooper has some good numbers here
Would this have any impact on access? On its own it would have none. The only money going out the door is to people who have already accessed (but not necessarily completed) post-secondary education. Not to say you couldn’t also put money into more grants, which would have an effect. Correctly, it is into these kinds of policies that Biden wants to put the bulk of his efforts.
Why wouldn’t lowering debt improve access? Because a debt jubilee doesn’t reduce future debt, unless you also take steps to reduce borrowing – and in the US case, that means in particular starting to regulate the 4-year for-profit schools more heavily. Absent that, the debt is simply going to pile up again.
Ok, so if access isn’t the goal, what does debt cancellation have going for it? Broadly, the arguments being made by this policy’s backers are that: i) it will stimulate the economy and ii) it is progressive.
In what way would it be economically stimulative? Well, the idea is that by alleviating recent graduates of their debt, these graduates will be able to spend more. Some critics like to point out that it is ineffective as a stimulus because the only money it will really liberate is the monthly payments (that is, if you forgive $10K in debt, the amount of extra spending power generated will only be equal to a few hundred dollars per year – the amount by which monthly payments are reduced). I think this is probably incorrect: what would likely happen is that borrowers would take advantage of reduced student debt to take on other types of debt which would be more stimulative (e.g. in order to buy a car, other consumer durables, or perhaps real estate). But for obvious reasons the pro-jubilee folks tend not to emphasize that the stimulus will come via more borrowing.
All right, so moderately stimulative, in limited doses then. Right. But on its own, stimulus is a pretty weak rationale: once you get outside the higher education sphere, there are many other ways to spend money which have higher stimulus effects (higher/longer unemployment benefits, for instance).
But is it progressive?
This is a tough one because a) it depends a bit on whether you measure progressivity based on income before education (i.e. family income) or after it or even – bear with me – based on lifetime income rather than a snapshot of income at any given time, b) race complicates the analysis and c) there is a tendency among some on the left in the US to describe any program through which the poor get any money at all as “progressive”. But broadly speaking, the answer is that to the extent it is progressive (and this very debatable: this long piece from Matt Bruenig
, a reasonably prominent Bernie Sanders supporter, suggests it probably is not), it becomes less so as the amount of debt being forgiven increases.
Wait – how does that work? Well, remember that the amount of debt you have is not simply a function of how poor you were when you went in. The number of years of study is a key factor – indeed, student loan defaults are negatively correlated with debt because the ones who have the most trouble re-paying are those that borrowed for a year or two and dropped out without getting a credential. While you hear a lot about people with $100K plus debt, in most cases those are people with two degrees (and hence high earning power), one of them often from an expensive private university. (Again, see that Bruenig piece – Matt as usual has done a particularly good job with the data). You can cut the data a number of different ways, but the result is always the same: the more debt that gets remitted, the greater the percentage of forgiveness goes to people in higher income brackets. Inserting race into the analysis complicates things, because at any given level of income, Blacks are more likely to be carrying debt than whites, so backers can still claim that debt forgiveness is progressive in terms of closing inter-racial wealth gaps even if they are plainly giving a disproportionate benefit to higher-income individuals.
So, only a bit progressive, not very stimulative, no impact on access: why is this considered such a great idea on the left?
Three reasons, I would argue. The first is a reparations logic, especially with respect to loan debt issues to students attending 4-year privates. A lot of these loans should never have been made, and never would have been had the sector been regulated properly. Forgiving those loans at least would be a way of acknowledging past policy failures and saying “our bad
”. This logic does not apply to all loans, but to some of them, anyway.
The second is a straightforward political “screw you” to the Republicans. “You guys can give away trillions in tax cuts to your favourite constituencies without worrying about the deficit? Well so can we!” Logically speaking it’s a terrible argument, but the tribal potency is undeniable.
The final one though is simply one of generational politics. The generation that has entered the labour market in the United States since about 2006 has had it pretty rough: economically speaking maybe worse than any generation since World War II (this is not true in Canada, btw, so be careful in arguing from this position up here). At a certain level, the emotional political appeal is simply “can’t we do something nice for young people for a change”? (sub-point: the Democratic house leadership trio of Nancy Pelosi, Steny Hoyer and Jim Clyburn – aged 80, 81 and 80, respectively – probably find it in their interest to be seen supporting youth issues because otherwise people might rightly get het up about gerontocracy)
Tl;dr? Debt-cancellation is mostly a way to cut young middle-class people a break, with a small racial-justice edge to it. It’s pretty harmless in relatively small doses, and if it is a one-off. Many of the rationales are actually just rationalizations. Other policies, such as free community college, or targeted free tuition at public 4-year colleges are – potentially, anyway – going to have far more impact on access. Keeping the focus on those elements is essential; fortunately, the Biden administration seems inclined this way.