Who Really Benefits From Student-Loan Forgiveness?

The proposal’s prominence has less to do with its merits than with college graduates’ agenda-setting power.

An illustration of a graduation cap with a chain attached
Adam Maida / The Atlantic

About the author: Jerusalem Demsas is a staff writer at The Atlantic.

In March 2020, the government stopped bugging me—and 40 million other Americans—for student-loan payments. It also stopped collecting interest on outstanding debt. And with so many other things to worry about, I largely stopped thinking about that debt. Some survey data indicate that many of my peers became similarly disengaged. Two years later, one estimate from the Committee for a Responsible Federal Budget suggests that $5,500 per borrower has been effectively canceled, largely because of the lack of interest that would have otherwise accrued on the outstanding debt.

So no one has to make payments. And inflation, which has risen sharply, is eroding everyone’s debt burden. But in the weeks following the 2020 presidential election, a coalition of 239 left-leaning groups called on then-President-elect Joe Biden to proceed with debt cancellation on “Day One of your administration.” These groups weren’t the only ones putting the issue on the agenda; Senator Elizabeth Warren, Senator Chuck Schumer, and several other prominent Democratic leaders joined the #CancelStudentDebt chorus. Google-search data show that queries for cancel student debt spiked multiple times during the pandemic, and that interest has remained above pre-pandemic trends. Just this week, Biden indicated in a meeting with the Congressional Hispanic Caucus that he is looking into widespread debt forgiveness.

Some items end up on the agenda because a towering majority of Americans demand change—the most obvious recent example is rising gas prices. Student debt feels different. After all, just 13 percent of the country carries federal student debt. Gallup frequently asks Americans what they believe is the most important problem facing the country today. According to the Gallup analyst Justin McCarthy, the pollster is unable “to report the percentage of Americans who have mentioned student debt or student debt cancellation because it hasn’t garnered enough mentions to do so.” In 2022 so far, he told me via email, Gallup has conducted four polls on the question and “just one respondent mentioned this as the most important problem facing the nation.”

Why, then, is student-debt cancellation having such a moment in the national political conversation?

Reason one: Because student debt is bad

You might argue that student-loan cancellation is having a moment because student debt is really bad. Simple as that. But the question of whether it is bad is actually pretty complicated. Lots of debt is not considered bad—for instance, most policy makers have no qualms with pushing as many people as possible to go hundreds of thousands of dollars into debt to pursue homeownership. Mortgages are the largest source of debt in the country and stood at roughly $10 trillion in September 2021. On its face, student-loan debt is the state financing the ability of millions of people (including this author, who is carrying more than $20,000 in outstanding federal-student-loan debt) to attend college, people who did not have the cash to pay up front and were loath to borrow from private lenders.

Certainly, total student debt has grown in size, shooting up from $948.2 billion in 2012 to $1.6 trillion in 2022. But so has the number of student-loan recipients, from 38.3 million in 2012 to 43.4 million in 2022. In that time, the average debt burden has gone from roughly $24,700 to $36,800. And that per-capita rise can be explained in part by the increasing numbers of student-loan recipients attending graduate school. (Graduate students borrow 37 percent of federal-student-loan dollars.)

The question of whether large amounts of student-loan debt are desirable depends on what recipients are buying in exchange for the debt. In 2020, the median weekly earnings for someone without a high-school diploma were $619; for those with some college but no degree, that number was $877; for those with a bachelor’s degree, $1,305. The number continues to grow for master’s recipients ($1,545), professional-degree recipients ($1,893), and doctoral recipients ($1,885).

Reason two: Knock-on effects

In The Appeal, the economist Marshall Steinbaum argues that student debt exacerbates racial inequalities in four ways: (1) The racial wealth gap means nonwhite families have a harder time providing financial support to their kids who attend college; (2) labor-market discrimination means people of color have to be more credentialed to get the same opportunities as their white counterparts; (3) people of color face discrimination in the credit market; and (4) students of color are more likely to attend less-resourced institutions and predatory colleges. Similarly, the American Civil Liberties Union has argued that student-loan forgiveness would “help close the racial wealth gap.”

Across the board, student-loan advocates have centered racial justice in their demands for loan forgiveness. They cite a variety of statistics showing that Black college graduates have more student-loan debt than their white counterparts, and that they pay off their loans at a slower rate than white graduates. But the former simply reveals that Black Americans are on average poorer than white Americans, and the latter is likely because of labor-market discrimination, neither of which is addressed by student-loan cancellation. Student-debt cancellation does not actually change anything about labor-market discrimination or credit-market discrimination or discrimination within institutions of higher education, nor does it address the rising cost of college. One could argue that debt forgiveness increases the wealth of nonwhite families, making it easier for them to support future children in attending universities. The wealth boost would be marginal at best, however, given that the majority of nonwhite borrowers owe less than $40,000 one year after graduation.

What’s more, the majority of all student-loan debt is held by white borrowers, and, according to the Pew Research Center, just 23 percent of Black Americans older than 24 had a college degree in 2019. The large majority of the Black population would not be directly served by student-loan forgiveness.

Student-debt advocates also commonly claim that relief could help the cause of housing affordability. Senator Warren, for example, has argued that canceling student-loan debt would boost homeownership, allowing borrowers to trade one form of indebtedness for another, worthier form. But the skyrocketing cost of housing, not student-loan debt, is what’s locking so many people out of homeownership. Although giving people any amount of money increases their chance of being able to buy a home, that’s not an argument in favor of student-debt cancellation specifically; it’s just an argument in favor of giving people money. If our elected officials are sincerely concerned about the housing-affordability crisis (which is also largely responsible for the continuing racial wealth gap), they should actually take steps to address it instead of legislating through back-door channels like debt forgiveness.

Reason three: It’s better than nothing

Ever since negotiations over the Build Back Better Act stalled, Democrats have been sluggish in developing and pushing through alternative legislation, despite the fact that the midterm elections are just a few months away. Indeed, NBC’s Sahil Kapur reported this week that Senator Joe Manchin says “there have been no talks” about a new reconciliation bill, and a senior White House official told The Washington Post’s Jeff Stein that “the White House is throwing every iteration at him.” So things are going well.

The Georgetown University public-policy professor Jonathan Ladd suggested that student-loan advocates have stepped into the messaging void: “I tend to think leaders in the White House and Congress have the most power to set the agenda,” he told me. “If they’re abdicating that role, then it gives activists and other people more power to get news for other things.”

Moreover, the lack of energy on the legislative side is forcing both rank-and-file Democrats and advocates to focus on what can be done through the executive branch. (That’s exactly what happened during President Barack Obama’s second term.) In October, Representative Alexandria Ocasio-Cortez posted on her Instagram story that “there is more opportunity than ever to bring the heat on Biden to cancel student loans. He doesn’t need Manchin’s permission for that … he needs to step up his executive action game.”

But this explanation cannot account for the fact that Build Back Better was very much alive until the end of 2021, and the chorus in favor of student-debt cancellation was thundering even then.

Reason four: “With the stroke of a pen”

Representative Ocasio-Cortez alluded to the best argument for student-loan forgiveness: Even if it’s no one’s top priority, advocates believe it can be done unilaterally by the Department of Education. Representative Ayanna Pressley told my colleague Russell Berman that it would take just a “stroke of a pen” to get it done. That’s not necessarily true: The legal theory that undergirds that argument was popularized in 2017 by a co-founder of the Debt Collective. No one really knows how the courts would rule.

But the possibility of an easy solution is enticing, especially when so many problems seem intractable. Building wealth for low-income Americans and bringing down the cost of housing, for instance, are complicated, multistep, multiyear processes. Canceling student-loan debt is an easy policy change to take credit for and has a set of clearly defined beneficiaries. But with housing affordability and the racial wealth gap, even if politicians did make progress on those issues, the beneficiaries would be largely diffuse and would likely experience only incremental benefits, so they probably would not reward politicians for any progress.

Reason five: The power of college graduates

According to Catalist data, roughly 43 percent of the 2020 Biden electorate graduated from a four-year college or university. Compare that with 2012, when, according to Pew, just 36 percent of registered Democrats had completed a four-year degree or more. Given that trend, student-loan forgiveness may seem like the classic tale of a political party transferring a valuable benefit to a crucial constituency.

Although college-educated voters are an important segment of the Democratic Party, no one identity group is completely dominant. The party has long been a coalitional organization stitched together loosely and lacking a clear ideological core. Daniel Schlozman, a political scientist at Johns Hopkins University, explained a coalitional shift within the party in recent years. “Democrats are becoming more consistently liberal in a variety of ways, and they’re becoming more upper-middle-class all at once,” he told me. “And that creates some awkwardness.”

Awkward indeed that so much energy has been spent on a policy proposal that would affect just 13 percent of the population, and that would send the most dollars to high-income earners and those with graduate degrees. The fervor with which student-loan advocates argue that these policies are in fact racially and economically progressive may be an attempt to resolve the awkwardness that Schlozman describes—advocates of debt cancellation are trying to build a coherent narrative for why a diverse coalition, many of whom have never attended college, should be in favor of forgiveness.

College-educated voters are not just dominant within the Democratic Party; they also dominate the media and, naturally, academia—two institutions that have significant power over what issues are brought to the fore. Importantly, academia and media have also become notoriously unstable work environments lacking sufficiently well-paying jobs. The demographics and precarity of these fields are likely playing a role in the prominence of the student-loan-forgiveness debate.

There are many good proposals for how to forgive student debt, particularly targeted programs aimed at helping those who attended predatory institutions or those who never received a degree and thus missed out on the higher earning potential that comes with it. But the issue’s prominence in our discourse has less to do with its merits than the changing political landscape that has stymied legislative efforts and given college graduates agenda-setting power.

Student-loan-debt forgiveness is not the only policy area in which these factors are prompting discursive oddities. Debate over the state and local tax (SALT) deduction—which disproportionately privileges wealthy homeowners in high-tax states such as California and New Jersey—pitted Democratic leadership against its declared commitment to redistributive taxation. Comically, the progressive darling Representative Katie Porter of California argued on Pod Save America that reducing the federal tax burden for people with “million-dollar homes” was important for her state to continue funding important Democratic priorities such as good salaries for teachers, climate programs, and public health. The SALT-deduction debate also paralleled the student-loan-forgiveness debate in its sidestepping of the underlying issue: People in coastal Democratic states don’t need a tax cut; they need someone to work to bring down the cost of living. If policy makers continue to press Band-Aids to gaping wounds and call it surgery, in no time the patient will be dead.