President-elect Joe Biden is considering executive action on student debt relief in hopes of stimulating the economy.
The idea is of great interest in Iowa, where public university tuition is set to rise next year. The state is in the top tier nationally for highest debt burden among college graduates, with almost two-thirds of the class of 2019 in Iowa holding debt of more than $30,000 on average, according to the Institute for College Access and Success.
Americans’ total student debt load — $1.6 trillion, more than we collectively owe on homes and cars — is a jarring figure, but erasing all of it is not good policy.
Even by progressive standards, canceling all student doesn’t really add up. It would be a boon for upper- and middle-income Americans like me, not for poor Americans. Most student debt is held by the top half of income earners, and the lowest 20 percent of earners hold just 8 percent of it, according to a recent analysis from the left-wing People’ Policy Project.
And it’s projected to be a meager economic stimulus. Jason Furman, an Obama-era Council of Economic Advisers chairman, recently wrote it “likely has a multiplier close to zero” since the forgiven amount would be taxable income.
For several decades, state and federal governments have been on a mission to increase college enrollment, never mind the expected costs and benefits. They make it extremely easy to get into debt, but very difficult to get out. Young adults can take out loans regardless of whether their course of study might pay off, even if they go to sketchy colleges offering junk degrees, but it’s uniquely difficult to discharge student loans through bankruptcy.
U.S. Sen. Bernie Sanders, two-time runner up in the Iowa Democratic caucuses, campaigned on wiping out all student debt. U.S. Sen. Elizabeth Warren calls for erasing most student debt, but would set limits on loan relief.
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Biden is unlikely to take up either suggestion. This week, he mentioned $10,000 in loan forgiveness, a fraction of the Warren plan. But he will face pressure to go bigger.
A narrow debt plan like Biden’s may be worthwhile. Relief should be narrowly targeted at people who struggle to make payments, not blasted scattershot at well-off people who don’t need it.
People who took on little or no loan debt forewent postsecondary education or went to cheaper colleges, potentially limiting their earning potential for life. And people who have already paid off their debt delayed making significant investments, such as starting businesses or buying homes.
Many of them resent the idea of canceling loans. It’s not because they are selfish or want others to be worse off; it’s because they made real sacrifices and are tangibly worse off for it, and they want proportional compensation too.
And, what about the next generation of student debt holders and debt-burdened taxpayers?
Student debt relief does nothing to control the skyrocketing cost of higher education, which outpaces inflation as measured by the consumer price index. Biden has other college affordability plans, but they center on shifting the cost to the government rather than actually reducing cost. It’s like getting a pedicure while your foot is consumed by flesh-eating bacteria.
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