Loan forgiveness helps the well-off
One drama of Joe Biden’s infant presidency was foreshadowed 13 months ago in Iowa when a rival for the Democratic presidential nomination, Sen. Elizabeth Warren of Massachusetts, answered a question. Her “a program for every problem” repertoire included up to $50,000 of forgiveness for indebted students or former students from households making less than $100,000, declining to zero for $250,000 households. An Iowan said to her:
“My daughter is getting out of school. I’ve saved all my money [so that] she doesn’t have any student loans. Am I going to get my money back?”
Warren: “Of course not.” Iowan: “So you’re going to pay for people who didn’t save any money, and those of us who did the right thing get screwed?”
Of course: Activist government usually serves those who know how to activate it — relatively affluent and articulate complainers. Last November, Adam Looney wrote in The Post that, “About 56 percent of student debt is owed by those with masters or professional degrees, and almost 35 percent of loan balances are owed by individuals in the top 20 percent of income distribution.” The five degrees responsible for most debt are: medical and law, bachelor’s and master’s in business, and bachelor of science for nursing. The typical college graduate with debt ($28,500) can retire it in 20 years with $181 monthly payments.
Senate Majority Leader Charles Schumer, D-N.Y., wants Biden to accomplish Warren’s project with a “flick of a pen.”
Schumer wants the legislative branch to be irrelevant to one of the largest transfers of wealth — more than $1 trillion — in U.S. history, a sum equal, according to Looney, to “the total amount spent on cash welfare since 1980.”
And federal student loan forgiveness might be followed by another pen flick — forgiveness of federal loans to students’ parents: The New York Times reports that under the Parent PLUS program, 10 to 15 percent of parents of undergraduates take out loans “that typically grow to over $64,000 by graduation day.”
Forty-three million people have, cumulatively, $1.5 trillion in federal student loan debt. But only one-third of adults over age 25 have four-year college degrees. They have substantially higher average incomes than the noncollege-graduate majority ($1 million more than a high school graduate in lifetime earnings), so the Warren-Schumer loan forgiveness would be an upward redistribution of wealth. Sixty-five percent of the Warren-Schumer benefits would go to households in the top two income quintiles, and only 14 percent to the bottom two quintiles.
As the government continues to lend more than $100 billioneach year to students (about 40 percent to graduate students), loan defaults, plus what are, effectively, debt-forgiveness programs for low-income borrowers, mean that, the Wall Street Journal reports, the government stands to lose $435 billion from existing loans. This is almost as much as the $535 billion that private lenders lost on subprime mortgages in the 2008 financial crisis.
An American Enterprise Institute study shows that after aggregating all forms of student aid, the tuition that low- and middle-income students pay at public universities averages less than $2,500 a year — just slightly more than 25 years ago. As student aid has increased, universities have increased tuition to capture much of the aid: A Federal Reserve Bank of New York study says tuition increases 60 cents for each student aid dollar.
College tuition inflation is more than triple the rise of the consumer price index. But because college, although nominally expensive, is, given myriad student subsidies, actually inexpensive, the nation is overproducing college graduates. A 2018 study found that 43 percent of graduates’ first jobs do not require college degrees, and twothirds of graduates are in such jobs five years later.
Warren, who seems to have learned economics from Rumpelstiltskin (Let’s spin straw into gold!), says student debt forgiveness would be the “single biggest stimulus we could add to the economy.” Jason Furman, who teaches economics at Harvard and was chair of President Barack Obama’s Council of Economic Advisers, thinks the stimulative effect would be negligible. Because most of the debt is held by people ascending the ladder of social mobility, one WarrenSchumer result would be affluent people increasing their savings. This “Brahmin bailout” might be discordant with progressive theories, but not with progressive practices.