A better, fairer way to handle student debt

President Joe Biden is set to “forgive” $10,000 worth of student loan debt per borrower, for a total of $360 billion in loan elimination. This may sound like a neat and easy solution, but the direct result will be to increase inflation, drive college costs even higher, and place lowercost and more effective education alternatives at a disadvantage.

College is far more expensive than it should be, and many students graduate with significant loan debt. Worse, employers increasingly report that colleges are not equipping students with the education and skills they need in the workplace.

Those are significant problems in need of solutions. But Biden’s plan papers over the fact that government policies are the cause of these problems. Student loan “forgiveness” will exacerbate these problems, not eliminate them. And it’s morally wrong, economically bad and educationally harmful.

Morally wrong. Forgiving a debt could be a morally virtuous act, but forgiveness—by definition—can only come from the one to whom the debt is owed. In the case of federal student loans, that’s the taxpayer. Biden’s plan to transfer $360 billion worth of individual student loan debts to taxpayers without their consent is closer to theft than “forgiveness.”

Canceling student loan debt is also incredibly regressive, as individuals with a higher education tend to have the highest earnings.

Fifty-six percent of all student loan debt is owned by a select group of individuals with advanced degrees, such as doctors, lawyers and engineers. Meanwhile, the much larger group of people in the U.S. — 37% of all adults ages 25 and older — who have a high school degree or less hold no student loan debt at all.

The Committee for a Responsible Federal Budget estimates that households in the top two income quintiles would receive 57% of student loan “forgiveness,” while those in the bottom two quintiles would receive only 17%. Working-class Americans without college degrees, people who worked their way through school without loans, and those who’ve worked hard to pay off their loans will be the ones paying for others’ student loan “forgiveness.”

Economically bad. The economy and inflation are Americans’ top concerns today, and loan forgiveness would hurt both. On top of trillions of new dollars in federal spending, the Committee for a Responsible Federal Budget estimates that 90% of the new consumption induced by student loan forgiveness would lead to price increases instead of economic growth. Boosting the spending of high-income households as the average worker has become $1,800 poorer over the past year due to inflation is bad economic policy.

Educationally harmful. Most pertinently, student loan forgiveness would exacerbate existing problems in the U.S. higher education system. The root cause of problems like college costs more than doubling (in real, inflation-adjusted dollars) over the past two decades, poor graduation rates — with only three in five students completing a four-year degree within six years — and graduates failing to gain the knowledge and skills they need in the workplace is government intervention in higher education.

Student loan subsidies drive up education costs without increasing the value of degrees. A Federal Reserve study found that each dollar of federally subsidized student loans that colleges receive leads to a 60-cent increase in tuition. Federal subsidies for higher education have also restricted the growth of more effective, lower-cost alternatives, like performance-based and income-sharing arrangement education programs and employerdriven education.

Forgiveness would likely encourage students to borrow at even higher rates in the future, in anticipation that they, too, would have some portion of their loan balance forgiven. And they could be induced to attend more expensive schools as well.

Instead of adding yet another problematic and harmful policy on top of existing ones, federal policymakers should remove current policies that are driving up college costs, increasing student loan debt, and widening the growing skills gap.

Among the solutions in a recent Heritage Foundation report:

• Phasing out federal subsidies for higher education to reduce inflated costs and allow a more level playing field across different education options.

• Allowing apprenticeship programs to expand by directing the Department of Labor to revive the nascent but flourishing Industry Recognized Apprenticeship Program.

• Ending failed federal job training programs so that individuals can obtain more effective training from the private sector and better-tailored state and local government initiatives.

Removing problematic policies may not be as politically appealing as “gifting” the most affluent Americans $10,000 of other people’s money, but it would provide far more good for civil society, for the economy, and for the future of the American workforce.

Rachel Greszler is a senior research fellow in The Heritage Foundation’s Hermann Center for the Federal Budget. Lindsey Burke is director of Heritage’s Center for Education Policy.