Student loan debt in the U.S. surpassed unimaginable heights this year. Sitting at a whopping $1.5 trillion, this category of debt is now larger than auto loans and credit card debt. Out of the 44.2 million Americans saddled with student loans, the majority are under the age of 30. Most of the debt consists of federally guaranteed Stafford Loans. About 4.7 million borrowers are currently in default. All of this is exacerbated by the rising costs of higher education. Tuition and fees both increase at a faster rate than financial aid programs, which means that students have to rely on either out-of-pocket expense or loans to make up the difference.
The severity of this problem has invigorated calls for widespread forgiveness of federally-held student loan debt. This would be a process where the federal government relieves student borrowers of most or all of their outstanding debt. Since debt never truly disappears, the burden for paying it off would fall upon taxpayers. Well-meaning columnists have argued for such an action, as evidenced by well-circulated opinion articles featured in major newspapers like The Washington Post. Up-and-coming political stars like New York’s Alexandria Ocasio-Cortez have spoken in favor of expanding student loan forgiveness. Even Alyse Galvin mentioned it during USUAA’s candidate forum on Oct. 25. In a survey of 466 Americans, 42 percent agreed that the federal government should forgive all student loan debt.
As appealing as mass forgiveness may seem, it is actually a horribly regressive policy action that should be completely avoided. Most of the debate on this has focused around the ethics of charging taxpayers for services that they never used. Critics of loan forgiveness point out that the decision to pursue higher education is an individual one, so no one but the student is responsible for financing it. Advocates of loan forgiveness counter that higher education is a public good much like infrastructure or security. Therefore, even non-graduates indirectly benefit from the labor of college graduates in the economy.
However, advocates of loan forgiveness have the weakest defense when it comes to two important arguments. First, forgiving student debt does nothing to solve the problem of what got students in debt in the first place. The government has the power to forgive and acquire the debt currently held by college students. But today’s high school students will eventually become tomorrow’s college students, and they will accumulate a similar or larger pile of debt. If the government forgives their debt as well, then taxpayers are on the hook for an endless cycle. If the government declines to forgive their debt, then it will have discriminated in favor of a particular age group and against another.
Second, forgiving all student debt would subsidize a portion of the population that is already better off than others. A study by the Pew Research Center found that median annual earnings for for full-time working college-degree holders are $17,500 greater than for those with high school diplomas only. College-degree holders are also less likely to be under the federal poverty level or be be unemployed for long periods of time.
College education also tends to be generational. The children of parents who graduated from college are much more likely to pursue college themselves than those whose parents did not. If advocates for student loan forgiveness truly consider higher education to be a public good, then I’m surprised to hear that they want to subsidize a demographic that is already benefiting from that public good.
Forgiving a privileged demographic’s debts is tough enough to justify, especially when compared to the welfare programs that service people who are actually in need of help. The Temporary Assistance for Needy Families program subsidizes poor families with children at a cost of $16.5 billion, according to the federal government’s fiscal year 2015 report. If the government were to forgive only the Stafford Loans held by students, then the cost would be about $735.5 billion. The government could fund the TANF welfare program for 44 years for equal to the cost of forgiving all Stafford Loans.
Forgiving all student loans is the most regressive and least effective tool that the government can employ. If Congress wants to get serious on addressing student loan debt, then it should recognize that easy solutions do not fix difficult problems. Government policy needs to be technical and targeted if it is to be effective. For example, Congress could offer a tax benefit to employers who help their employees repay student loan debt- kind of like how employers already receive benefits for offering 401(k) retirement plans. Additionally, Congress could allow borrowers to refinance their debt if interest rates are lower one year. Interest rates for student loans are currently fixed on an average. Whichever the way, simply waving a wand over debt and pretending like it’s a collective responsibility is the worst of all options.