Despite enthusiastic encouragement from 238 organizations and the likes of Ocasio-Cortez and Warren, the President’s authority to cancel student debt via executive order is debatable. Perhaps of more important concern, is the utility of such a policy, and its moral and economic ramifications.
Currently there is a little over $1.5 trillion worth of student debt owed to the federal government. $123.14 billion of that is private loans which leaves almost 93% of federal student debt remaining. There are several variations of this potential policy that have been presented, some of which include partial and others complete debt forgiveness. The practical and fiscal impact varies depending upon the numerical nuances of the currently hypothetical policy, but it appears the notion of debt forgiveness is not a feasible nor fair proposal.
Cancelation of college debt deceptively favors higher income individuals. As stated by Kevin Williamson, ‘The majority of student debt is held by relatively high-income people, poor people mostly are not college graduates, and those who attended college but did not graduate hold relatively little college-loan debt, etc. As the New York Times puts it, ‘Debt relief overall would disproportionately benefit middle- to upper-class college graduates.’ Which ones? ‘Especially those who attended elite and expensive institutions, and people with lucrative professional credentials like law and medical degrees.’ An October analysis by the Brookings Institution found that almost 60 percent of America’s educational debt is owed by households in the nation’s top 40 percent of earners, with an annual income of $74,000 or more. Wharton economist Sylvian Catherine and the University of Chicago’s Constantine Yannelis find that full cancelation of student loans would distribute $192 billion to the top 20% of income earners, while the bottom 20% would receive only $29 billion. As Catherine put it, ‘Outstanding student debt is inversely correlated with economic hardship, so it is difficult to design a forgiveness policy that does not accentuate inequality.’ Indubitably the cost of tuition has risen over the past several decades to the extent that it has outpaced inflation, but contrary to what some politicians might want you to believe, government subsidization will not reduce tuitions and continued subsidy could instead drive pricing upward as a result of perceived lowered costs, thereby increasing demand. Moreover canceling student debt with the prospect of increasing cash flow by $90 billion a year with a cost of $1.5 trillion doesn’t seem like a prudent fiscal policy.
While canceling college debt will do little to produce desirable economic results, the potential moral implications are insidious. As stated by Jean Paul Sartre, ‘Man is condemned to be free; because once thrown into the world, he is responsible for everything he does.’ Actions are consequential. Therefore, policy doesn’t cause loans to vanish. Taxpayers will incur the cost of forgiven debts creating what economists refer to as a moral hazard, incentivizing poor decisions made by those believing someone else (i.e. taxpayers) will pick up the tab. Mary Clare Amselem of the Heritage Foundation explains, “if lawmakers force taxpayers to pay off the student loans of current borrowers, it would (absent a zeroing out of the federal student loan program) only encourage future students to borrow more, with the expectation that they, too, can ride another wave of forgiveness. Inflationary pressure on tuition prices would explode. The solution, however, would be to turn to the real culprits here: profligate universities and bad federal policies.”
As Mike Rowe asserts, ‘We are lending money we don’t have to kids who can’t pay it back for jobs that no longer exist.’ It is inequitable to demand those who made concessions to pay off their own debt or chose other paths in life, to pay for those who have accrued exorbitant financial burdens.
Government policy forcing taxpayers to pay for the choices of some, while simultaneously punishing others who consciously took a different course of action, is intrinsically unjust. It does nothing to reduce the inordinate costs of tuition, nor does it do much to increase the students’ long-term potential for fiscal success. In a society where there is tremendous pressure to attain prestigious degrees in subjects like gender studies, that offer minimal applicable life skills, or translate to high demand jobs, perhaps it would behoove the nation to require High School juniors to take an introduction to economics. A course inculcating basic principles of finances and loans aspiring to impart fiscal responsibility and perspicacious decision making, could potentially yield tremendous dividends, since as Aristotle so eloquently stated, ‘we are the sum of our actions and therefore our habits make all the difference.’