Don’t Forgive Student Debt

This week, the Left has intensified its calls for President-elect Joe Biden to forgive student debt via executive order, perhaps as much as $50,000 per borrower. Such a move would constitute both awful policy and an abuse of the discretion that Congress has granted to the executive branch in this area.

It is often said that Americans’ trillion-and-a-half-dollar student-loan debt is a “crisis.” It is not. As Beth Akers of the Manhattan Institute has noted, the typical four-year college graduate who borrowed starts with a debt of $28,500, which he can eliminate with 20 years of $181 monthly payments. By way of comparison, bachelor’s-degree holders outearn high-school grads by something like a million dollars over the course of their lives. College costs too much, but not so much that we need to feel sorry for the most educated people in our society.

What about those with far higher burdens? These large sums normally come from graduate studies, not four-year degrees, and are disproportionately possessed by folks with relatively high incomes, including doctors and lawyers. Higher undergraduate debt is also often the result of a deliberate choice to attend expensive private colleges rather than more affordable public ones, and to turn down avenues such as military service that can pay for college. Moreover, many students from truly modest means are already given significant grant aid. On top of that, the problem of truly unmanageable debt has already been addressed — and at the expense of federal taxpayers.

The federal government owns about 90 percent of student debt, and it allows borrowers to escape their burdens through assorted “income-driven repayment” options. Borrowers who go this route, which is about half of them, generally pay 10 to 20 percent of their discretionary income — and after 20 or 25 years (ten for those working in public service), any remaining debt is forgiven. Someone with a lot of grad-school debt but a low income can obtain tens of thousands of dollars’ worth of forgiveness this way.

Some borrowers do fall through the cracks of this system and default, but they are disproportionately those with low debt, especially folks who attended college but didn’t graduate. Any further reform efforts should be targeted toward this problem, and should be matched by reducing the incentives for students who are unlikely to graduate to borrow a lot of money for college in the first place.

There is simply no justification for forgiving student debt broadly, even with limits to the overall amount of forgiveness or the income of the beneficiaries. Forgiving college debt is a slap in the face to those who paid down their debts early, those who minimized their borrowing by attending cheaper schools or working during their studies, those who forwent college entirely, and those suffering under other kinds of debt. College-loan forgiveness is also a poor way to stimulate the economy in the short term during the COVID-19 malaise, because there are plenty of groups more deserving, because much of the forgiven debt wouldn’t have been repaid for years anyway, and because the forgiveness would probably be taxed. And it’s virtually guaranteed to be regressive, for the simple reason that Americans who went to college are a richer-than-average bunch. And if debt forgiveness is premised upon the idea that the current lending system is unfair, why should only one generation of borrowers benefit? This will create political pressure, as all “one-time” amnesties do, for repetition on behalf of future borrowers, who will be encouraged to think of debt as free money that will never need to be repaid.

Forgiving debt via executive order poses additional problems. Congress has unwisely granted the executive branch a broad authority to modify, compromise, waive, or release students’ debts, but this was clearly not meant to authorize a mass-scale jubilee, and there are solid arguments that courts should not even allow it. For instance, federal law also directs agencies to “try to collect” the debts they are owed, and as the late Antonin Scalia once wrote, policymakers don’t hide elephants in mouseholes: An obscure provision of the law shouldn’t be taken as a license to ignore the rest of it.

Joe Biden ran as a moderate who could unite the country. Hardly anything could be more divisive than shunting taxpayer dollars at folks who’ve been to college while low-skilled workers bear the brunt of our current economic pain.

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