Forgiving Student Debt Will Further Exacerbate Inequality

President Biden’s spending splurge continues as he rang in April by asking his Secretary of Education, Miguel Cardona, to review his authority to sidestep Congress in implementing mass student debt forgiveness. Such an aggressive move against this debt seems prudent and noble, as millions of Americans have amassed a collective $1.6 trillion in student loan debt — a total sum which eclipses the value of all other types of debt except mortgage debt. But the way it is being framed is disingenuous. Politicians and activists today look at this ever-increasing debt as the plight of the working class, calling for varying degrees of mass student loan forgiveness as a means to remedy their struggle. This effort — however noble it’s motivations —  masquerades as relief for the working class when it is actually a regressive policy that would only perpetuate inequality. 

Advocates of student debt forgiveness have proposed a wide litany of policy proposals, with most of them being blanket calls for forgiveness. On the more modest side, there is President Biden’s endorsement of $10,000 in debt forgiveness. In the middle there is Senate Minority Leader Chuck Schumer’s proposal to forgive $50,000, and on the fringe there is Senator Sanders’ dream of all student loan debt being wiped away. All three proposals are sweeping, applying to everyone regardless of their individual circumstances. And if Biden bows to certain progressive voices to his left, then any degree of forgiveness could be implemented without input from Congress.

Any of these policies being enacted would reward the upper echelons of society at the expense of those who either chose not to pursue a higher education or could not do so. In effect, it would force the nearly ⅔ of working Americans without any higher education to help foot a bill for a segment of Americans that, statistically, will likely earn more than them in their lifetime. Americans who either cannot or do not want to pursue a higher education would see their tax dollars directed towards relieving the debts of those with better economic prospects than themselves. 

Proponents of mass student debt forgiveness counter this argument by pointing to the people who struggle with economic insecurity despite having a higher education. There is no denying that this is true and an issue, but this point neglects the details. First, the Consumer Financial Protection Bureau reports that 80% of borrowers repay their loans within twelve years; there is also already a debt protection program which relieves debt for extreme circumstances. So not only are most people able to repay, but there is a targeted relief program for those who need it that could be expanded instead.

Interestingly, it should be noted that those who struggle the most with paying down their student debt are not actually those with the largest debts. This is because the largest debts are concentrated among those who pursue advanced graduate degrees (e.g doctors, lawyers, etc.) and consequently have the greatest earnings power to pay down their debt in the future. The blanket forgiveness being lobbied for in Congress today would provide an asymmetric benefit to debt holders with the most earnings potential, another extremely regressive aspect of the proposal. 

Plenty of studies across the political spectrum demonstrate this often overlooked fact. According to analysis done by the right-leaning Heritage Foundation, the top ⅕ of households by income hold $3 in student loans for every dollar held by the bottom ⅕ (Burke, 2020). As such, any debt forgiveness would benefit the top ⅕ of society drastically more than the bottom ⅕ —  a curious result of a policy meant to relieve those in need. This corroborates the findings of a study conducted by the left-leaning Urban Institute which found that the bottom quartile of households by income would see only 12% of the benefits of all student debt being forgiven. Slyvain Catherine, an economics professor at University of Pennsylvania’s Wharton School, found in his research on student debt relief that “outstanding student debt is inversely correlated with economic hardship.” The bottom line is that government aid should not be distributed on the basis of who chooses to borrow the most money, but on the basis of who will actually need it. 

Professor Catherine suggests targeting any aid on the basis of ability to repay, thus giving aid towards only those who actually demonstrate a need. By doing so, it would drastically reduce the taxpayer cost imposed on those who did not seek a higher education and reduce inequality among degree holders. The rationale behind this calculus lies on a simple premise: policies honestly meant to help struggling people should see their benefits go to them, not the wealthy. Mass student loan cancelation may seem like it would satisfy this premise, but this illusion of equality is shattered when tested by the numbers numbers which suggest mass student debt forgiveness is just a giveaway for the wealthy disguised as a trojan horse.

So the question is, why is the progressive flank of the party pushing so hard for such relief when it so poorly addresses inequality? And the answer to that is simple: it’s motivated by politics and not smart policy. College graduates and current students make up a large portion of the electorate which handed the keys of the White House to Biden, so it only makes sense that Biden is motivated to pay them back. This interpretation, however cynical it may be, speaks to a fundamental truth about politics: you scratch my back, and I will scratch yours. But this battle against the inequality in our society requires us to go beyond politics, to push the paradigm of policy in a much more technocratic and conscious direction. 

Massive student debt forgiveness would help many students and recent graduates, including myself, but it would simply be an inefficient use of national resources. These resources would be better expended going towards the most in need or paying down our ever-growing national debt. If our public policy instead allocated resources to go towards the most educated slice of society with the best prospects in our economy, then that would be akin to pouring gasoline on the flames of inequality in an attempt to put it out.