I’m sure you have heard that many of the most liberal Democrats are in favor of forgiving all or part of the record $1.6 trillion in outstanding student loans. The average student loan debt is about $35,000 according to the Congressional Budget Office.
You may have read that President-elect Joe Biden wants to forgive 10% of all student debt across the board; Senate Minority Leader Chuck Schumer wants to forgive 50%; and Senator Bernie Sanders and others want to forgive 100%.
I’ll tell you why this is a universally bad idea below, but let’s get a couple of things straight right up front. First, the word “forgive” is not applicable in this case. In order to cancel student loans, the federal government would have to borrow this money to repay the banks, financial institutions and even the government itself, which made these loans to students.
What that means in reality is taxpayers will foot the bill for any student loan forgiveness.
The second thing to point out right up front is the fact that most Americans, especially low-income people, don’t have any student debt because most didn’t go to college in the first place. According to the National Center For Education Statistics, only about 35% of high school graduates complete four years of college.
So how is it fair to those with no college debt to forgive college loans for those who willingly took out these loans? It’s not! And how about those of us who dutifully repaid our college loans in full? I had to work my way through college, in addition to taking out student loans, which I fully repaid. These are questions the liberal politicians rarely ask.
This is a bad idea, period. First, almost half (47%) of all outstanding student debt is owed by graduate students who are pursuing advanced degrees, largely in fields which pay very well – think medicine, attorneys, engineers, etc. These students should easily be able to repay their loans.
Second, among undergraduates, nearly two of every three federal student loan dollars (64.7%) went to students of selective institutions in recent years – think private schools which tend to have very high tuition relative to public colleges. These students come from mostly affluent families and they, too, should have no problem repaying their student loans.
By comparison, undergraduates at non-selective, mostly public, colleges and two-year vocational (trade) programs each hover around only 10% of total outstanding student borrowing in recent years, according to the Congressional Budget Office.
The point is, liberal politicians pushing student loan forgiveness haven’t thought this through: Doing so, as they suggest, will benefit affluent students and those headed for higher income professions the most – while in effect penalizing college students pursuing lower paying jobs such as truck drivers, construction workers, retail employees and those looking to work in the restaurant and hospitality industries, for example.
Moreover, graduate students and undergraduates at selective private schools are substantially more likely to be more financially secure than other student loan borrowers. Undergraduates of selective schools are significantly less likely to default on their debt – their three-year default rate is only 9.8%, according to CBO’s most recent data.
In comparison, that rate was 17.6% for non-selective (public school) undergraduate students; 25.7% among for-profit (non-public) undergraduate students; and 26.4% for students of two-year trade school programs. For their part, graduate students at selective schools have a three-year default rate of only 3.9%, while those at non-selective schools have a rate of 5.6%.
In short, not all students with debt struggle in the same way, and most student debt is concentrated among those with relatively greater financial security.
Capping the relief each borrower receives doesn’t change how top-heavy the policy is. According to the Urban Institute, Biden’s plan to cancel $10,000 of debt per borrower would cost the federal government at least $369 billion. Of that amount, about $314 billion (85%) would go to Americans above the lowest income quintiles. Senator Schumer’s idea of $50,000 of forgiveness per borrower would cost $961 billion (probably over $1 trillion) – about $829 billion (86%) of which the lowest income quintile will not see.
The bottom line is: Every dollar the federal government spends on forgiving the debt of a financially secure, affluent person is a dollar that cannot be dedicated to other important spending needs. Because most of the hundreds of billions of dollars required would go to the financially secure, these sweeping proposals for loan forgiveness would be a terribly inefficient way to improve the wellbeing of struggling Americans.
Since discussions about forgiving student loan debt are likely to come front and center early next year, everyone should be aware of the points discussed above… especially Democrats who are promoting this idea.
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