Federal Student-Loan Cancellation Is Bad Policy

(zimmytws/Getty Images)

A student-debt cancellation is a bald handout to the affluent.

Sign in here to read more.

Why should the government give yet another preferment to investment in upgrading the human capital of the affluent, over the capital investments of other entrepreneurs and workers?

NRPLUS MEMBER ARTICLE D emocrats want to prove they are the party of the marginal and oppressed. But they also want stuff for their kids.

Every Democrat constituency is currently trying to reinsert its policy goals into the discussion, as President-elect Joe Biden begins to announce the members of various task forces and select people to nominate for cabinet positions. It doesn’t matter if Joe Biden campaigned explicitly against these policies and beat other Democrats who advocated them — with a tiny majority in the House, and perhaps no Democratic control of the Senate, the party has an incentive to unite, and an incentive to at least hear everyone out.

Of particular interest are the affluent voters, who mostly live in the inner-ring suburbs and whose ongoing defection to the Democrats in 2018 and 2020 helped determine their success. These voters want their taxes lowered, via a repeal of Trump’s cap on tax deductions covering state and local taxes. They also want to see student debt canceled. Chuck Schumer, revealing little faith in the ability of Democrats to win special Senate elections in Georgia, announced rather preposterously that Joe Biden could, by executive order, cancel up to $50,000 of debt per student debtor. This roughly hints at the plan put forward by Senator Elizabeth Warren to cancel student debt.

Alexandria Ocasio-Cortez joined in.

Another member of the Squad, Representative Ayanna Pressley, tweeted that “student debt cancelation will ensure an equitable economic recovery from COVID-19, jumpstart our economy & close the racial wealth gap.”

This is a bad justification for a bad policy.

The cancellation of the bulk of student debt would immediately put into question the status of future student loans. And, in fact, many beneficiaries would respond to this stimulus by taking out more student loans. It would not be the last debt cancellation; it would merely be the first.

This debt jubilee would postpone the deserved reckoning of the higher-education system with its runaway inflation and predatory practices. Tuition inflation is caused largely by the government’s guarantees and preferment for student debt above other debts in the market. This preferment is how mid-tier schools started “charging” $70,000 a year. And this gusher of money has abetted some really awful trends in higher education.

First, the explosion of “administration” jobs, which leaves many schools with more managers of social life than professors. Second, the transformation of many mid-tier schools into luxury resorts for the young, since “amenities” are the only way they can compete with each other. Third, the proliferation of vulture schools, and “night-programs” that use the student debt-system as a wealth-transfer program. These schools recruit students from their five-figure jobs in service industries with promises to help their careers. They load these students up with loans to pay for six-figure-earning professors and administrators, and then dump nearly all of these students back into the low-wage industries they came from. Fourth, the preferment of student debt enables schools to work with existing incumbents in some industries to help colleges “colonize” new non-professional fields. Degrees in turf management, baking science and technology, or brewing and distilling are evidence of colleges encroaching on industries that did just fine with apprenticeships and want ads.

A student-debt cancellation is also a bald handout to the affluent. The Brookings Institution has looked into who holds student debt and who would stand to benefit from a cancellation along the lines Schumer mentions. Even when you begin lowering the available debt relief to those earning over $125,000 a year — as Senator Warren’s plan does — about 65 percent of the relief would go to households with incomes in the top forty percent nationally; only 14 percent would go to households in the bottom 40 percent.

It is also an insult to people who made other career and life decisions. Two-thirds of Americans don’t go to college. A number of them might, instead of taking out student loans for a degree of marginal value, instead take out a loan on a truck for work. Or they might have signed a lease for a storefront or workshop to launch their enterprise. They are also likely hurting in an economy wrecked by a pandemic and political gridlock. Why should the government give yet another preferment to investment in upgrading the human capital of the affluent, over the capital investments of other entrepreneurs and workers?

It shouldn’t.