Last week, the Biden administration announced a student loan forgiveness program, canceling up to $20,000 in student loan debt for Pell Grant recipients and $10,000 for non-Pell Grant recipients for individuals whose annual income is less than $125,000 (or household income of $250,000). $125,000 is a pretty high threshold (well above median income), and given how many people are saddled with student loan debt, this is a pretty significant program.
Critical to understand about this program is that it is fundamentally not an out-of-the-goodness-of-my-heart program. The logic behind the program is economic: people who have student loan debt have less disposable income, leading to suppressed consumer spending and thus a less robust economy. Any messaging around this program that has to do with bleeding-heart liberalism—from either side—is ideological and opportunistic. If there were not an economic benefit expected from this program, then it would not have been pursued.
Generally speaking, it is a good thing for people to be out of debt, so in that sense, the program is good. However, what bothers me is that the government absorbing student debt does absolutely nothing to address the underlying systems that got us here in the first place: inflated university prices with little accountability for rising fees. In fact, the forgiveness program arguably reinforces the trend of rising university costs. If students are insulated from the cost because the government absorbs the debt, then universities have no incentives to keep costs low. Students need not be deterred by the high costs. I hate that the government is effectively rewarding bad behavior on the part of the universities.
There are also much broader systemic and cultural issues that this program does not address. Unless you come from a wealthy family with generous parents, the only way to pay for university is to participate in a predatory borrowing system that lends the least creditworthy adults imaginable (eighteen-year-olds with a high school diploma) tens of thousands of dollars. The expectation is that a future university degree is supposed to provide the backing for the loans, but the backing is pretty flimsy when university graduates enter the working world of stagnant wages in real terms, especially in a post-Great Recession world. Because of our society’s emphasis on the importance of a university degree as a means to personal economic success, university attendance has been steadily rising, but this has inevitably resulted in an oversaturation of university-educated adults in the marketplace. An undergraduate degree simply does not carry you as far as it used to.
Now, let’s pull a bit more on the thread of, “it is good for people to be out of debt”. I encountered a critique of the program that provided a counterargument based on my same line of reasoning: if debtors suppress their spending, and if this is bad for the economy, then why don’t we also issue debt forgiveness for people who, say, carry $40,000 in car loan debt?
My first rebuttal to this counterargument is that a car purchase is exactly the kind of consumer spending that the government is hoping to stimulate by the student loan forgiveness program.
My second rebuttal is that student loan debt is the largest debt category in the country, ahead of credit card debt, car ownership debt, or homeownership debt. In terms of net benefit to the economy, student loan forgiveness is likely to have the greatest impact (or so the premise goes).
My third rebuttal is that usually you can’t get into that kind of debt unless you are approved for such a loan based on your creditworthiness. And that’s true for most other kinds of debt too: you need to get approved for home loans, and credit cards have maximum credit limits. As mentioned previously, there is essentially no vetting process for student loans; or, at least, the vetting is based on assumptions about the student’s future rather than an examination of prior financial records to assess the student’s propensity to pay back. And, unlike for student debt, people do always have the (unfavorable) last resort option to declare bankruptcy and be released from other forms of debt, including car debt.
My first three rebuttals have focused on why car debt is not analogous to student debt. But my fourth rebuttal highlights how car debt can be similar to student debt. There are a lot of people who would indeed benefit from having their car loans forgiven—namely, low-income people who have no other transportation options. Just as taking on student debt is essentially a requirement for economic success in our society, owning a car is also essentially a requirement for economic success if you don’t live in an area with reasonable transportation alternatives1. And that sucks. It sucks that many low-income and working class people cannot get by without a car because they live in more affordable yet distant suburbs with unrealistic and impractical transportation alternatives. It also sucks that it has become so difficult to get by without a university degree.
Owning a car is expensive. If we chose to subsidize car debt for those who absolutely needed a car for their livelihoods, then by the same logic as the student loan forgiveness program, this would also unlock untapped economic potential through increased consumer spending.
Critical to understand about this program is that it is fundamentally not an out-of-the-goodness-of-my-heart program. The logic behind the program is economic: people who have student loan debt have less disposable income, leading to suppressed consumer spending and thus a less robust economy. Any messaging around this program that has to do with bleeding-heart liberalism—from either side—is ideological and opportunistic. If there were not an economic benefit expected from this program, then it would not have been pursued.
Generally speaking, it is a good thing for people to be out of debt, so in that sense, the program is good. However, what bothers me is that the government absorbing student debt does absolutely nothing to address the underlying systems that got us here in the first place: inflated university prices with little accountability for rising fees. In fact, the forgiveness program arguably reinforces the trend of rising university costs. If students are insulated from the cost because the government absorbs the debt, then universities have no incentives to keep costs low. Students need not be deterred by the high costs. I hate that the government is effectively rewarding bad behavior on the part of the universities.
There are also much broader systemic and cultural issues that this program does not address. Unless you come from a wealthy family with generous parents, the only way to pay for university is to participate in a predatory borrowing system that lends the least creditworthy adults imaginable (eighteen-year-olds with a high school diploma) tens of thousands of dollars. The expectation is that a future university degree is supposed to provide the backing for the loans, but the backing is pretty flimsy when university graduates enter the working world of stagnant wages in real terms, especially in a post-Great Recession world. Because of our society’s emphasis on the importance of a university degree as a means to personal economic success, university attendance has been steadily rising, but this has inevitably resulted in an oversaturation of university-educated adults in the marketplace. An undergraduate degree simply does not carry you as far as it used to.
Now, let’s pull a bit more on the thread of, “it is good for people to be out of debt”. I encountered a critique of the program that provided a counterargument based on my same line of reasoning: if debtors suppress their spending, and if this is bad for the economy, then why don’t we also issue debt forgiveness for people who, say, carry $40,000 in car loan debt?
My first rebuttal to this counterargument is that a car purchase is exactly the kind of consumer spending that the government is hoping to stimulate by the student loan forgiveness program.
My second rebuttal is that student loan debt is the largest debt category in the country, ahead of credit card debt, car ownership debt, or homeownership debt. In terms of net benefit to the economy, student loan forgiveness is likely to have the greatest impact (or so the premise goes).
My third rebuttal is that usually you can’t get into that kind of debt unless you are approved for such a loan based on your creditworthiness. And that’s true for most other kinds of debt too: you need to get approved for home loans, and credit cards have maximum credit limits. As mentioned previously, there is essentially no vetting process for student loans; or, at least, the vetting is based on assumptions about the student’s future rather than an examination of prior financial records to assess the student’s propensity to pay back. And, unlike for student debt, people do always have the (unfavorable) last resort option to declare bankruptcy and be released from other forms of debt, including car debt.
My first three rebuttals have focused on why car debt is not analogous to student debt. But my fourth rebuttal highlights how car debt can be similar to student debt. There are a lot of people who would indeed benefit from having their car loans forgiven—namely, low-income people who have no other transportation options. Just as taking on student debt is essentially a requirement for economic success in our society, owning a car is also essentially a requirement for economic success if you don’t live in an area with reasonable transportation alternatives1. And that sucks. It sucks that many low-income and working class people cannot get by without a car because they live in more affordable yet distant suburbs with unrealistic and impractical transportation alternatives. It also sucks that it has become so difficult to get by without a university degree.
Owning a car is expensive. If we chose to subsidize car debt for those who absolutely needed a car for their livelihoods, then by the same logic as the student loan forgiveness program, this would also unlock untapped economic potential through increased consumer spending.
* * *
Do not misunderstand me: I am certainly not a gung-ho defender of the student loan forgiveness program. I would much rather have had a policy initiative intended to address the student debt crisis attack the issues at the source. Or, maybe the issue should have been left to linger until society reached a breaking point such that expecting kids to go to college fell out of fashion. In the latter case, perhaps universities would be forced to cut their fees out of economic pressure—admittedly, this scenario is a very-long-term gamble.
The program is a quick fix intended to serve as a stop-gap and address an acute financial issue facing tens of thousands of people. Like all such programs, it’s a not-great solution to a shitty situation for which there are no good solutions—think of the bailout of irresponsible financial institutions in 2009, or the PPP loan forgiveness in 2021.
Where I will draw a hard line, however, is any critique of the program that is ultimately related to some twisted sense of “fairness”. This critique usually involves some form of differentiation between people who fully paid off their loans as “responsible” and people who carry large amounts of student debt as “irresponsible”. It sometimes more overtly asserts that people who paid off their loans are somehow penalized by the program.
To that, I respond: what kind of person would wish financial hardship on someone just because other people went through it? Furthermore, the student loan forgiveness program does not penalize anyone. No one who paid off their loans is made worse off by the program, aside from a feeling of it not being fair. Yes, there will be a downstream indirect tax burden, but that would apply both to beneficiaries and non-beneficiaries of the program. (There is probably a hope that the increased consumer spending will offset the potential tax bill…an oft touted strategy which never actually works, but it’s a cute idea.)
There is also a generational element here. Asserting that some students are “responsible” while others are “irresponsible” with respect to the magnitude of their student debt assigns far too much control to the individual and ignores the institutional and societal forces at play. I say that this is generational because no other generation than the currently student-indebted one (i.e., Millennials) has had to contend with university costs as exorbitant as they are with decreasing returns from a university degree, all following a lifetime of being told that attending university was the key to success. University was not an option for Millennials; it was a baseline requirement to avoid social failure and disappointing our parents. Millennials played by the rules and worked hard to get into increasingly competitive university slots, but skyrocketing university costs financed by student debt and stagnant wages make it seem like society has not held up its end of the bargain. Differentiating between “responsible” and “irresponsible” students reeks of ignorance of the circumstances in which Millennials have come of age. Certainly, there exist many irresponsible student borrowers, but I would posit that “lucky” and “unlucky” would be a more accurate bifurcation of student borrowers. So much of the current system is outside of what individual responsibility can take care of.
And, lastly, because I sometimes also write about Jesus things, it may be worth commenting on some of the critiques of the student loan forgiveness program that have come from Christians who happen to also be politically conservative. Literally the entire premise of Christianity is that people carry a debt they cannot pay, but said debt gets canceled. Where are the arguments of “responsibility” there?
And don’t forget the parable that Jesus told about the landowner who hired workers to start at 9 AM, noon, 3 PM, and 5 PM, and paid them all the same wage. Those who started at 9 AM got Big MadTM. The landowner responded:
Do not misunderstand me: I am certainly not a gung-ho defender of the student loan forgiveness program. I would much rather have had a policy initiative intended to address the student debt crisis attack the issues at the source. Or, maybe the issue should have been left to linger until society reached a breaking point such that expecting kids to go to college fell out of fashion. In the latter case, perhaps universities would be forced to cut their fees out of economic pressure—admittedly, this scenario is a very-long-term gamble.
The program is a quick fix intended to serve as a stop-gap and address an acute financial issue facing tens of thousands of people. Like all such programs, it’s a not-great solution to a shitty situation for which there are no good solutions—think of the bailout of irresponsible financial institutions in 2009, or the PPP loan forgiveness in 2021.
Where I will draw a hard line, however, is any critique of the program that is ultimately related to some twisted sense of “fairness”. This critique usually involves some form of differentiation between people who fully paid off their loans as “responsible” and people who carry large amounts of student debt as “irresponsible”. It sometimes more overtly asserts that people who paid off their loans are somehow penalized by the program.
To that, I respond: what kind of person would wish financial hardship on someone just because other people went through it? Furthermore, the student loan forgiveness program does not penalize anyone. No one who paid off their loans is made worse off by the program, aside from a feeling of it not being fair. Yes, there will be a downstream indirect tax burden, but that would apply both to beneficiaries and non-beneficiaries of the program. (There is probably a hope that the increased consumer spending will offset the potential tax bill…an oft touted strategy which never actually works, but it’s a cute idea.)
There is also a generational element here. Asserting that some students are “responsible” while others are “irresponsible” with respect to the magnitude of their student debt assigns far too much control to the individual and ignores the institutional and societal forces at play. I say that this is generational because no other generation than the currently student-indebted one (i.e., Millennials) has had to contend with university costs as exorbitant as they are with decreasing returns from a university degree, all following a lifetime of being told that attending university was the key to success. University was not an option for Millennials; it was a baseline requirement to avoid social failure and disappointing our parents. Millennials played by the rules and worked hard to get into increasingly competitive university slots, but skyrocketing university costs financed by student debt and stagnant wages make it seem like society has not held up its end of the bargain. Differentiating between “responsible” and “irresponsible” students reeks of ignorance of the circumstances in which Millennials have come of age. Certainly, there exist many irresponsible student borrowers, but I would posit that “lucky” and “unlucky” would be a more accurate bifurcation of student borrowers. So much of the current system is outside of what individual responsibility can take care of.
And, lastly, because I sometimes also write about Jesus things, it may be worth commenting on some of the critiques of the student loan forgiveness program that have come from Christians who happen to also be politically conservative. Literally the entire premise of Christianity is that people carry a debt they cannot pay, but said debt gets canceled. Where are the arguments of “responsibility” there?
“Oh, praise the one who paid my debt…”
And don’t forget the parable that Jesus told about the landowner who hired workers to start at 9 AM, noon, 3 PM, and 5 PM, and paid them all the same wage. Those who started at 9 AM got Big MadTM. The landowner responded:
“I am not being unfair to you, friend. Didn’t you agree to work for a denarius? Take your pay and go. I want to give the one who was hired last the same as I gave you. Don’t I have the right to do what I want with my own money? Or are you envious because I am generous?”
(Matthew 20:13-15)
Let’s recontextualize:
“I am not being unfair to you, person who already paid off their student loans. Didn’t you sign the master promissory note agreeing to the loans’ payback terms? Congratulations, you’re still debt-free, and this program doesn't change that. As the guarantor of the federal loans, don’t I have the right to cancel them? Or are you envious because I am generous?”
1 In this country, that is basically everywhere except New York City. As an aside, San Francisco’s transit is objectively not great—it is almost always faster to travel by car rather than by transit in this city—and yet it’s touted as having one of the best systems in the country.
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