Why broad-based forgiveness of student-loan debt isn’t a good idea
May 11 marked a financial watershed for my friend Laura Davenport, a teacher at Alamo Colleges in San Antonio. She received an email that day from the Department of Education saying her $155,000 of student loan debt had been forgiven through a program called Public Service Loan Forgiveness.
She couldn’t believe it at first.
She had been working for years to qualify for such debt relief. She described to me a Kafka-esque journey with her loan servicer and the Department of Education, seeking a way to discharge the loans she took out for her master’s degree and doctorate in creative writing. From 2009, when she completed her degree, until now, her loan balance had grown from $119,921 to $155,399 — despite making payments for more than 10 years.
I tell this anecdote in part to call attention to the PSLF program. People with student loans who have or will accrue 10 years in public service or nonprofit work may qualify for this massive debt relief. The deadline to have one’s case for loan forgiveness reviewed by the Department of Education — with relaxed standards for qualifying, compared to the past — is October.
I also bring this up because the Biden administration has strongly implied it will soon forgive $10,000 of debt — or more — in a kind of blanket amnesty program for student loan borrowers. A progressive movement has grown to a crescendo
Like a regressive tax policy, broad debt forgiveness doesn’t pass the fairness smell test.
in the past few years in favor of broad-based student loan forgiveness.
I, however, think providing this type of regular student loan forgiveness would be a big mistake.
The pro-student loan forgiveness movement makes the following points:
• The cost of higher education has become outrageous. Tuition inflation has averaged 6.2 percent for the past 20 years, much higher than inflation in the rest of the economy and certainly outpacing
wage increases.
• State universities are no longer affordable for many, if not most, Americans. Over the past 20 years, the average cost of public education has nearly tripled. The children of middle class families cannot afford public education. Despite robust public university systems, the average student borrower in Texas has more than $31,000 in debt.
• Unlike nearly every other type of personal debt, student loans cannot be discharged in bankruptcy, making it a harsher debt burden than credit cards, and home, car and business loans.
• Balances on student loan debt are bigger than credit card debt balances, roughly $1.7 trillion compared to $840 billion. About 13 percent of Americans have student loan debt, making it a widespread burden.
• Wealthy countries in Europe do not make higher education unaffordable like we do. It’s typically free or very inexpensive.
I agree with all of this. And yet I still don’t think the Biden administration should offer $10,000 or more in student loan amnesty.
I have two main arguments against wide-scale debt forgiveness.
First, it’s inequitable. Academic studies all conclude that student debt forgiveness plans are regressive, partly because of the demographics of those who enroll in higher education and partly because of high debt balances incurred pursuing degrees that lead to potentially high incomes, such as medicine, law and business. That means the greatest benefits of this public good go to higherincome populations, while the lowest-income populations enjoy less benefit. Like a regressive tax policy, broad debt forgiveness doesn’t pass the fairness smell test.
Second, it’s bad politics. Here’s a partial list of people who have good reason to resent broad-based higher education loan forgiveness:
• Americans who have not obtained higher education degrees, which is a majority. Only 48 percent of people 25 or older have completed an associate, bachelor’s or higher degree.
• Americans who received higher education loans and have paid their debts one way or another. They did the hard thing, and now they will feel like suckers.
• Americans who will take out higher education loans in the future but who will not receive loan forgiveness. When my girls go to college, by an accident of birth, they will most likely not have their debts forgiven.
This is a recipe for political resentment. Of course, we may anecdotally know or be somebody “deserving” of debt forgiveness, but as a matter of policy, it’s not a good idea.
So what kind of relief should we offer? I’m very pro-debt forgiveness for people who have done public service. The military, government service and public education seem like worthy ways to earn debt relief. People working in these areas have earned less with their degrees than they could have in the private sector while contributing to society, and then society pays them back. It’s a fair deal that’s politically palatable.
As for Davenport, who qualified after working 10 years in public service, I’m thrilled for her. During the last administration, PSLF approvals dropped to nearly none; the Government Accountability Office found that 1 percent of applicants qualified by 2019.
A shift in policy in the past year, however, has suddenly set up borrowers for potential massive relief.
A second group that should get relief are people scammed by higher education. On June 1, the Education Department wiped out $5.8 billion owed by 560,000 people who borrowed money to attend Corinthian College, which went bankrupt after 20 years of dubious promises and under-delivery. Seems right to me, but it would have been more satisfying if Corinthian College leaders had been prosecuted for costing the public billions of dollars.
The Biden administration’s plan to simply forgive loan debts — not linked to service — seems unfair and politically unwise.
Michael Taylor is a columnist, author of “The Financial Rules for New College Graduates” and host of the podcast “No Hill For A Climber.” michael@michaelthesmartmoney. com | twitter.com/michael_taylor