I have always been against canceling student debt. My main argument is that it benefits the rich more than the poor. After accounting for the value of an education and the effects of student debt relief programs, an analysis by the Brookings Institution found that the wealthiest 20% of households owe almost a third of all student debt. The bottom 20% only owe 8%.
Anyone with a degree already has an incredibly valuable resource – a college education. Adults with bachelor’s degrees typically earn about $1 million more over their careers than people with only high school diplomas.
In addition, the cancellation of student debt is exorbitant. As Adam Looney of the Brookings Institution pointed out, widespread student loan forgiveness would rank among the most significant transfer programs in American history. And the plans to cancel all federal loans would cost more than was spent from 2000 to 2019 on unemployment insurance, the working income tax credit or food stamps – programs that actually go to those who need it.
Debt forgiveness sends terrible cultural signals. This nation is already bitterly divided on education. Today’s populists are rightly angry that college-educated Americans have built a society that’s pretty soft on them and their kids, and pretty hard on everyone else. The student loan forgiveness would be seen as another example of the educated class taking care of its own – and leaving everyone else to eat dust.
All of this is still mostly true. However, I admit that I had some doubts. I guess I’ve concluded that it’s wrong to generalize as if there’s only one group called “college graduates”. In reality, we have at least two different classes of university students and graduates. One group are safe students and graduates — those who come from middle-class homes and have certain resources as they transition from campus to adulthood.
The other group is that of precarious students and graduates. Over the past few decades, America has done a much better job of getting less affluent students into high school and college. These people seize the chance to take the leap into the middle class, but they have few resources and no room for error when they make that leap.
Some arrive at university without academic preparation. They rack up debt but can’t graduate. Others have a “life happens” moment. Maybe a parent gets sick and has to leave school to support the family. Some have attended mediocre colleges which they later discover did nothing to make them more valuable in the market.
These precarious students and graduates are trying to make the leap at a historically difficult time. The financial crisis and the Covid have upset the career trajectories of young adults. Education and real estate prices have skyrocketed. By the time baby boomers reached a median age of 35, their generation owned 22% of the country’s wealth. Millennials, who will reach a median age of 35 in 2023, own about 6% of the country’s wealth.
These precarious students and graduates have done what we wanted them to do: embark on social mobility. But many now owe more than they have wealth. Laura Beamer and Eduard Nilaj of the Jain Family Institute found that in 2019, the student debt-to-income ratio was 98% for America’s lowest income decile. This means that the median income for this group exceeded the median student debt burden by less than $700.
Conditions are particularly dire for African Americans. According to a 2016 Brookings report, the average black graduate owes $52,726 four years after graduation, compared to $28,006 for the average white graduate. Black borrowers are also much more likely to be behind on their payments.
For many of these young adults, the burden of debt alters their psychology and behavior. Many suffer from the severe anxiety of feeling buried under an unrelenting weight. It’s been hard for them to seize opportunities, buy a house, start a business, have a child – all the things we want young adults to do to ensure a vibrant and prosperous America.
I admire how Elizabeth Warren has pushed this issue so passionately, but I’m still a long way from her proposal, which would bring benefits to many people who don’t need them. And if you ask me if we should have a big student debt cancellation program, I would say no.
But if you ask me to say where America’s social mobility machine has collapsed, I’ll include how underfunded young adults wane between their 20s and 35s. Are there better ways to help these Americans than debt cancellation? You bet. Do we live in a country where legislation to do this will pass Congress? We dont do.
Debt cancellation is something President Biden can probably do on his own. So I’m rooted for narrowly focused forgiveness. I hope Biden will dramatically increase the amount of debt he is willing to forgive, say $20,000. But hopefully he will limit the pardon to precarious graduates — perhaps those from families earning less than $75,000, perhaps those who have already received Pell grants.
Social change over the past few decades has made me much more supportive of income redistribution than before – especially redistribution that invests in human capital. But it must be a distribution downwards, not upwards.