Why Erasing Student Debt is not "Unfair"
Amid calls from progressives to cancel all student debt and pushback from conservatives about the possible inflationary impact of debt forgiveness on the American economy, President Biden today came out with a plan to erase up to $10,000 of student debt per borrower and up to $20,000 for Pell grant recipients that threads the needle very carefully between these two contrary stances.
Roughly 43 million federal student loan borrowers would be eligible for some level of forgiveness, including 20 million who could have their debt completely canceled, according to internal documents shared with The Washington Post. The White House estimates that 90 percent of relief will go to people earning less than $75,000.
The plans are only expected to apply to Americans earning under $125,000 per year, or $250,000 per year for married couples who file taxes jointly. The pause on loan payments that was instituted during COVID times for everyone has also been extended to December 31, 2022 for now. The proposed plan also proposes to simplify repayment plans for existing and future students so borrowers repaying in good faith will see a light at the end of the tunnel.
One of the biggest criticisms for student debt forgiveness, especially among the South Asian immigrant community, is that it is “unfair.” After all, goes the argument, we scrimp and save and put in long hours at our workplaces to be able to afford college for our children. Why should our taxes subsidize the poor choices made by others? Why should we have to bear the burden of people getting unusable degrees on a whim and becoming unemployable?
On the face of it, this seems like a fair argument. But let’s explore the facts around the student debt situation in this country.
- More students feel compelled to go to college, even if they have to take out loans to do so because employers are expecting college credentials for the most mundane jobs.
- Rather than poor choice of major, student debt reflects the fact that the cost of education is the same for every major, despite the fact that some majors lead to more lucrative jobs. If all students were to flock to those majors, we would have a system akin to India's with millions of unemployed engineers. After all, we do want educated people in other professions, don't we? Chart below, courtesy of educationdata.org.
- Public schools and universities used to offer cheap education till they began to be run like a business in the wake of easy student loans. The cost of education has skyrocketed without a corresponding increase in wages.
- Many borrowers have paid off multiples of their original loan without making a dent in the principal amount. (see chart below) (Also see here for student loan horror stories)
(Photo courtesy the Jain Family Institute)
- Student debt disproportionately affects black families. According to the ACLU, because of long-standing systemic racial discrimination, black families have far less wealth to draw on to pay for college. Did you know that post WWII, the G.I bill helped white Americans prosper and build wealth and the same was denied to black Americans, leading to generational poverty. This bill helps to address that. By comparison, educated South Asians immigrants come to the U.S. with a lot of intellectual capital that allows them to work in high-paying jobs, thus able to build savings.
- The loans that are being forgiven are the ones that essentially will eventually go into default, and since most of these loans are owned by the government (92%), this kind of debt forgiveness just speeds up the process, thus freeing up borrowers to improve their credit, be free to set up their own businesses, and be able to participate in the economy without the weight of unpaid debt on their backs.
Yes, this debt forgiveness plan does nothing to deal with the increasing costs of higher education and the likelihood of future student debt. (A debt-free college system should be the next big initiative of federal and state governments, and some steps are already being taken in states like California.) But President Biden’s plan offers a much-needed reset to millions of Americans who have been operating in good faith to try to pay back their loans, and goes some way into addressing the racial inequalities that the current system has perpetuated.