Canceling Student Loan Debt Is Terrible Policy

AP Photo/Andrew Harnik

By Ethan Nikfar

Our elected officials often display too much creativity. They invent new issues to be solved by highly funded bureaucratic agencies instead of focusing on getting the already-too-large government to just do the ordinary things competently. Nevertheless, sometimes, they lack cleverness, as Democratic demands for canceling student loan debt have shown us. 

President Biden has morphed his Presidency from an emphasis on a return to normalcy, unity, and bipartisanship to Barack Obama’s third term, only much more liberal. This shows just one thing: his campaign was a fraud. 

Mr. Biden’s party has a deadlocked Senate and a slim majority in the House. Donald Trump came within only 42,921 votes (the margin of Mr. Biden’s combined victory in Arizona, Georgia, and Wisconsin) of retaining the Presidency. The President does not have a mandate to enact transformative legislation. 

Nevertheless, Mr. Biden and his allies in Congress have become ambitious. Democrats in the Senate, such as Elizabeth Warren and Chuck Schumer, are demanding that Mr. Biden cancels $50,000 of student loan debt per borrower through executive action. Mr. Biden has indicated he is more comfortable with $10,000 in debt cancelation. 

Put aside the likely Constitutional violation if this action is done via Executive Order. It would still be terrible policy. 

Let us start with the premise of the argument. Democrats argue that student loan debt is crippling millennials. Their debt is a crisis that prevents them from putting money into the economy and owning their own houses. However, even their premise is incorrect; it is no “crisis.” As Beth Akers of the Manhattan Institute has pointed out, the average four-year college graduate borrowed $28,500 to pursue their bachelor’s degree; this can be paid off over 20 years with $181 in monthly payments. Furthermore, suppose an individual does not make much income but has abundant outstanding debt. Under federal law, they qualify for an “income-based” repayment option that forgives the debt if they make responsible and affordable payments over a period of time. 

But unwilling to let the pandemic go to waste before implementing the transformational changes she desires, Ms. Warren says writing off the debt would “boost our economy right now.” Take the money people owe and give it back to them, which they can then spend. That will boost the economy, right? Wrong. Most of the forgiven debt would not have been paid back for years, allowing for very little short-term economic stimulation. It also seems as though Democrats have once again fallen for the broken window fallacy. What about all the taxpayers who will have to subsidize these canceled loans and whose consumer spending will then be decreased as a result? 

You may ask who would benefit from the loan write-offs. The student loan cancelations’ significant beneficiaries would be wealthier students who took out loans to pay for their expensive graduate degrees. As Preston Cooper of Forbes explains, graduate borrowers will receive 80 percent of loan forgiveness benefits. Lower-income undergraduate students typically owe much less because they are eligible for pell grants at public universities and sometimes institutional grants at private ones. 

A study from the University of Chicago estimated that the top 10 percent of households by income would reap six times as much benefit from a $50,000 student loan cancelation as the bottom 10 percent.

Moreover, about two-thirds of people currently in the workforce did not graduate from college. Those with only high school diplomas typically earn 85 percent less than those with college degrees. But hold on: Isn’t it the Democratic Party that stands in solidarity with the less fortunate? Apparently not. Democrats would force working-class individuals who did not even go to college to subsidize the loans of disproportionally more affluent individuals who did. 

Not only is the policy regressive, but thousands of borrowers have already paid back their loans—in full. It is a slap in the face to those who responsibly paid back the debt they voluntarily took on.

This also sends a terrible message to young adults: they cannot and should not be responsible for their own finances. There is no worse life lesson to be taught than teaching people that other taxpayers will pick up the slack for their own irresponsible decisions. 

Progressives who discuss the issue rarely mention the fact that the government ruined tuition prices and student loans in the first place. The federal takeover of loans has exemplified a broad-scale push by the government to incentivize people to go to college, take out subsidized loans, and major in something where they do not learn life skills. Private-sourced loans generally have higher interest rates, and banks do not want to lend to incoming college students majoring in gender studies. This effectively means that the government is artificially driving up college costs because they have created more demand and not as much supply to keep up. 

Canceling student loan debt today would then make people question future loans. Many more students would then respond to the stimulus by taking out loans for themselves—expecting that this would not be the last cancelation. This exacerbates the problem by further increasing the demand for college, and therefore tuition prices and student loan debt along with it.

The issue is not just the fault of the government, either. Universities have continued to scam students by offering less income-driven degrees, which they know will be subsidized by the government. 

Progressives’ poorly thought-out solution to the problem takes away from legitimate policy proposals we should be considering to drive tuition prices down—policies such as the privatization of student loans. 

But if Democrats are so serious about this idea, they should put it up for a Senate vote today. They will not, and my guess for why is that even Mr. Schumer recognizes it is only popular among blue-checkmark progressive elites.

Mr. Nikfar is a Sophomore at Chapman University studying Pre-Pharmacy.

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