Go Ahead, Forgive Student Debt

Debt forgiveness is not the best form of stimulus available. But Joe Biden shouldn’t waver.

A graduation cap with a $27,600 price tag on it
Shutterstock / Getty / The Atlantic

President-elect Joe Biden could conjure a sweeping financial-relief policy into existence on the first day of his presidency, without the participation of Congress, the Federal Reserve, or any other institution. That is, he could forgive student loans.

On Monday, Biden said that loan forgiveness figures into his plan to rev up the American economy, citing a provision in the House’s stalled-out HEROES Act that would pay off $10,000 a person in student loans. Senator Chuck Schumer, the minority leader, and Senator Elizabeth Warren are pushing the incoming administration to forgive up to $50,000 a person in federal student-loan debt. That would completely eliminate the burden of three in four borrowers.

That kind of radical provision might not be the best form of stimulus available. Nor would it fix the country’s crushing student-loan crisis, or rationalize its higher-education financing structure. Nor would it be a clear-cut political winner. Nevertheless, it would be a stellar policy for the Biden administration to undertake on day one.

Over the past few decades, higher education has become impossibly expensive, saddling 44 million Americans with $1.6 trillion in debt. The cost of a year at a private college is now $37,650, on average, and $10,560 at public institutions, more for out-of-staters. The heft of those bills obligates a majority of attendees and many of their parents to take out loans; in fact, 2019 graduates owe an average of $29,900. The United States is an outlier in the size and scope of its loan infrastructure; in many peer countries, higher education is seen as a public good and a college degree is low-cost or free.

Even as getting millions more Americans into college has had tremendous social value, this metastasizing debt crisis has had tremendous social costs. An entire generation has been set back: Millennials are on track to be the first generation in modern history to end up poorer than their parents. Student loans are delaying retirements. They’re suppressing the housing market. They’re suffocating new business formation. They’re even leading young people to delay getting married and having children.

They are also widening the country’s racial wealth gap. A higher share of Black college students take out loans than white students, and those loans tend to be bigger, because Black students have access to less familial wealth. The economist Thomas Shapiro notes that, two decades after they enter school, the median white borrower has paid off 94 percent of debt, whereas the median Black borrower has paid off just 5 percent. (“Are you sitting down?” he asked me, before rattling off the statistic.) Indeed, going to college now provides no boost in wealth for Black students, largely because it is so costly.

The student-loan crisis has an underappreciated emotional valence too: The debt makes people miserable. In one survey, more than half of borrowers said that they have experienced depression because of their debt. Nine in 10 reported experiencing anxiety. Even if taking on student-loan debt does tend to boost a person’s lifetime earnings, even if it is justifiable and manageable and makes sense on paper, people hate it.

It did not have to be this way, nor does it have to be this way. And although having a federal student-loan debt jubilee would not fix higher-education financing or end the COVID-19 recession, it would take a boulder off of millions of Americans’ backs—the exact number depending on how much Biden chooses to forgive and for whom.

Why not do it? Opponents make a few good arguments. First, as noted by the Harvard economist and former Obama adviser Jason Furman, the federal government would not get much bang for its buck. The Trump administration has already deferred student-loan payments through the end of the year, to give families some financial relief. Canceling payments outright would not lead to much of a boost in consumer spending. Using public dollars on another super-dole or on something like infrastructure would be a far better investment.

A second, related argument is that it is a regressive policy, which helps rich people more than poor people, much like the Trump tax cuts. Most student-loan borrowers are college graduates, and thus winners in this winner-take-all economy. A majority of student-loan debt is held by Americans toward the top of the income scale, with 56 percent held by those with graduate degrees. Doctors, dentists, lawyers, engineers, and statisticians do not need financial help from Uncle Sam right now, whereas the unemployed and minimum-wage workers really do.

Third, the debt jubilee would be unfair: unfair to people who paid off their student loans; unfair to people who will take them out five or 10 years from now; unfair to people who declined to take them out and worked their way through school; unfair to people who chose community college instead of a private institution; unfair to people with private student-loan debt that the federal government could not disappear without an act of Congress. A debt jubilee might be bad politics too: College graduates helped deliver the election to Biden. Do they really need a five-digit thank-you?

Last, such a policy might prompt universities, colleges, and other institutions to increase tuition on the expectation that the federal government will absorb more of the cost of higher education going forward. It might create moral hazard for students, too, who might take out bigger loans expecting Washington to step in eventually. If it did not, the student-loan crisis would worsen.

For all that, student-debt forgiveness is still a good policy. It may not count as an effective stimulus, but there is no reason to frame it as such, given that debt forgiveness does not crowd out other forms of spending. (The government is borrowing for free right now.) This is a yes-and situation, not an either/or one: Why shouldn’t the government eliminate student-loan debt while also trying to pass another unemployment extension? That gets to another argument for debt forgiveness: Biden can do it unilaterally. Senators cannot filibuster executive orders.

As for the plan’s regressive elements: Wealthy individuals and individuals likely to become wealthy in the future do hold the most student debt. But millions of low-income and middle-income families, as well as young people without the fallback of familial wealth, are also burdened. The smallest borrowers struggle the most with their loans, as noted by the economist Susan Dynarski. Even $5,000 or $10,000 of forgiveness might be life-changing for them. Plus, many of the student-loan forgiveness options out there have progressive elements built in: Warren’s campaign, for example, pushed to forgive $50,000 in loans for households with less than $100,000 in income, while tapering off support at the $250,000 level. The fact that the giveaway would be so helpful to Black students and Black families should factor into the political calculus too.

As a broader point, giving money to rich people does not erode the benefits of giving money to poor people; and the government should not avoid giving money to poor people because it would also entail giving money to rich people, at least not in this unusual case. The United States needs a much more progressive tax-and-transfer infrastructure, given how dramatically inequality has increased. But not every single policy needs to be ideally progressive to achieve that goal. The principle matters here too. The fact that higher education should be a public good matters.

The possibility that a jubilee would increase college costs down the road is perhaps the most serious concern—but hardly a reason not to help the people now in need, and people Biden could help without Congress. Politicians and policy makers could follow up debt relief with a plan to make college affordable and accessible, ideally with direct federal investment in higher-education financing.

This is a policy that would help middle-class families, could be passed instantly, and would advance racial justice. Student-loan debt is suffocating an entire generation. Why not, during this miserable pandemic, magic at least some of it away?