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Whenever I think about student loan debt, one of the first things I think about — besides my own — is a 2018 essay by my colleague M.H. Miller. As one of the 45 million Americans who collectively owe $1.71 trillion for student loans, Mr. Miller wrote about what it is like to have debt — more than $100,000 worth in his case — become the organizing principle of your life, to be incapacitated by it, suspended, at age 30, “in a state of perpetual childishness.”
A lot has changed since Mr. Miller wrote that essay. For one thing, the national student debt increased by a couple of hundred billion dollars. But the most striking difference is how quickly calls for the president to cancel that debt, a vast majority of which the federal government owns, have migrated from the margins to the center of the national policy debate, from a radical demand chanted by activists to a proposal championed by the top Democrat in the Senate.
Here’s how economists, lawmakers and activists are thinking about it.
What’s the case for canceling student debt?
There are two overlapping ways proponents tend to answer this question: the economic injustice argument and the enlightened society argument.
If you borrowed $10,000 and you’ve been trying to repay it for 10 years and you haven’t made any progress, we should forgive it today. We shouldn’t make you wait another 10 years. If you were the victim of fraud or abuse, we should forgive your debt. — Sandy Baum, economist at the Urban Institute
The economic injustice argument frames education as an investment that has increasingly become faulty or even fraudulent: Generations of Americans were told that a higher degree was the path to financial security and upward mobility. In recent decades, however, as administrative expenses ballooned and public education budgets were slashed, schools shifted their rising costs to students, causing tuition to skyrocket. Still, people held on to the promise that the investment would eventually break even — after all, the federal government was lending them the money to pay for it.
But for millions of Americans, that promise proved hollow. Why?
The labor market experienced what some scholars call credential inflation: Workers have had to buy more education to qualify for the same jobs, but wages have risen at a snail’s pace compared with the costs of tuition, housing and health insurance.
The economic injustice argument tends to invite a lot of debate about how best to tailor cancellation to those who are suffering most from the crisis, which isn’t always the same thing as who has the largest student loan balance. That’s because student debt, in dollar terms, is concentrated among people who make more money and tend to be much better able to make their monthly payments than borrowers who owe relatively small amounts.
Here’s a chart from Matt Bruenig at the People’s Policy Project that shows the spread:
The enlightened society argument frames higher education as a public good, much as it’s treated in other wealthy countries and as K-12 education is already treated in the United States: It should be free or cheap for all, financed by taxes that can be raised on the rich, and no one should have to go into debt to get it.
Education has been twisted into primarily job training. We think of it as, you take out your loans to invest in yourself, so you can get a job, so you can pay back those loans. I want to just break that paradigm and say, no, education is actually about education. This is why it should be free. — Astra Taylor, a co-founder of the Debt Collective
From this vantage, proponents argue that the student debt crisis incurs social costs even in the case of better-off borrowers, like lawyers who have to go into corporate law instead of becoming public defenders because they have $200,000 in law school loans to pay off. And then there are borrowers for whom “affording” payments means being saddled with the depressing obligation to delay or forgo major life milestones like having children, owning a home and saving for retirement.
Listen to Ms. Baum’s and Ms. Taylor’s debate here and subscribe to “The Argument” wherever you get your podcasts.
How much debt would be canceled?
There are three proposals being debated in Washington:
Senators Charles Schumer, the majority leader, and Elizabeth Warren have introduced a resolution calling on Mr. Biden to cancel up to $50,000 in debt per borrower, which could cost up to about $1 trillion.
For those who believe that higher education is a public good, canceling all debt might seem like the obvious choice. But what’s fairest from an economic justice perspective?
Proponents of limited cancellation argue that it targets relief to people who need it most. “The $50,000 across-the-board relief championed by Schumer and Warren is wildly out of synch with the traditional approach of progressive policymaking,” writes Adam Looney, an economist at the University of Utah, in The Washington Post. At less than half the cost, Mr. Biden’s proposal “could eliminate debt for the 15 million borrowers with smaller balances who, paradoxically, tend to struggle most, accounting for about 60 percent of all defaults.”
Proponents of broader or total cancellation argue that actually, those policies are progressive: Better-off borrowers would receive the largest amount of relief in dollars, but worse-off borrowers would still receive the greatest relief relative to their income. And no matter their income, very few people who have student loans are wealthy.
“Removing student debt would make the overall income and wealth distributions more egalitarian,” Marshall Steinbaum, also a University of Utah economist, writes for The Appeal. “Notwithstanding all the hoopla about student debt cancellation being a giveaway to the rich, no one disputes this basic fact.”
What’s more, Naomi Zewde and Darrick Hamilton, professors who study the intersection of economics and race in America, argue in The Times that total cancellation would help close the racial wealth gap by disproportionately helping Black Americans, who are more likely to take on student debt, and more of it, just to make the same amount of money as their less-educated white peers.
Skeptics of all these plans argue that there are better ways for the government to spend its money. First, debt cancellation of any kind is arguably unfair to borrowers who have already paid off their loans, raising the question of whether they would be owed reparations.
Second, mass cancellation “boosts the balance sheets of people who attended college while doing nothing for people who did not attend college, even though the latter is, on average, worse off in many respects,” as Mr. Bruenig writes. “If the government is going to sprinkle $1+ trillion of net worth onto household balance sheets, should it really do so in a way that leaves out those without college educations?”
What happens the day after cancellation?
Virtually everyone in this debate agrees that cancellation would only treat the symptoms of the student debt crisis, not cure its causes. Some say it could make the problem even worse by, in effect, bailing out schools whose value has outstripped their cost, causing tuitions to rise even higher and incentivizing people to take out loans they can’t afford with the expectation they will be forgiven.
Opponents of mass cancellation argue for longer-term solutions, like fixing the currently dysfunctional program of forgiving loans in exchange for public service, expanding income-driven repayment systems to make repayment easier, investing more in higher education to make it more affordable and making college less necessary to earn a good living in the first place.
Proponents of mass cancellation argue that these aren’t mutually exclusive policies: Ms. Taylor, for example, supports both debt cancellation and free universal college. Mr. Biden himself has proposed a limited plan for the latter that would make two years of community college free for all, eliminate undergraduate tuition at public universities for students from families earning less than $125,000 and subsidize the cost of historically Black colleges.
But these policy disputes run aground on the reason debt cancellation has garnered so much attention in the first place: It’s the one policy the president could — maybe — do without the help of Congress.
“Unilaterally forgiving student debt without enacting deeper reforms to how we pay for college is an awkward, temporary fix that could bring up perilous political and legal issues,” Jordan Weissmann writes in Slate. “But right now, it would be a mistake for Biden to rule it out entirely: In a world where only third- and fourth-best policy options are realistic, we may be talking about a mediocre idea whose time has come.”
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MORE ON THE DEBT DEBATE
“Forgiving All Student Loans: A Bold Idea, or Welfare for the Well-Off?” [The New York Times]