A rescue package for student debt would be unfair


“So you will pay for people who haven’t saved any money, and those of us who did the right thing will be ripped off,” said the father, visibly upset. “My buddy was having fun, bought a car, went on vacation. I saved my money. He made more than me, but I worked a double shift, worked extra. My daughter has been working since she was 10 years old. “

This exchange vividly illustrates the injustice of student debt proposals that would ultimately punish those who saved more and worked harder to pay for college, those who postpone their higher education until they could afford it, and those who Responsibly repaid their loans – by forcing them to pay them for those who didn’t. Even more outrageous, it would force the two-thirds of Americans to do that not earn a college degree to help many of those who have done it.

Of the nearly $ 1.7 trillion in student loan debt, the vast majority, more than $ 1.5 trillion, is held by the US government, according to the Federal Reserve. Because higher education is strongly correlated with higher incomes, these college loans focus on the relatively wealthy. So an immense government program to cancel outstanding student debt would benefit people with high incomes disproportionately at the expense of those who are less fortunate. Democrats, perhaps a year ago, thought it made political sense to offer a bailout to higher-educated upper-middle-class voters. But how can they still think that way after an election that has failed the “blue wave” they expected, in part because of the Republican achievements among non-college Americans?

But leading Democrats and Progressives are doubling down. “Biden-Harris can cancel billions in debt” Warren tweeted recently. Chuck Schumer, the Senate minority leader, claims that every college graduate has the “first debt of $ 50,000” [can] be defeated ”by an executive order of the next president. On Wednesday, a coalition of 236 liberal organizations called on Biden to issue this order when he took office.

It is far from clear that billions in debts can simply be written off by presidential decree. But leave the question of procedure aside. A huge new student loan waiver program is politically unjustifiable.

As mentioned earlier, this would be a boon to the relatively wealthy. But it would also treat similarly situated people unequally. Imagine three 30-year-old neighbors, each with $ 50,000 making – a construction worker who never went to college, a law clerk with a two-year degree and $ 2,000 in student debt remaining, and a software engineer who is a four year year college and graduate school and still has $ 50,000 in unpaid loans. A bailout that paid off $ 50,000 in student debt would do nothing for one of the neighbors, a modest $ 2,000 for the second, and a $ 50,000 gold mine for the third.

College loan forgiveness is not only unfair. It is unnecessary. Some borrowers find it difficult to manage their student debt, but the data shows that this is not a national crisis. According to the Consumer Financial Protection Bureau, 70 percent of college loans are repaid in full within 10 years. For borrowers with loan amounts between $ 5,000 and $ 10,000, 80 percent will pay off the debt within a decade.

For a typical American household paying off a student loan, the payments amount to about 5 percent of income, according to the Federal Reserve‘s Survey of Consumer Finances. According to Jason DeLisle, a college funding specialist at the American Enterprise Institute, a recent analysis of the financial records of 4 million families by the JP Morgan Chase Institute found that the typical monthly student loan payment was between $ 144 and $ 203. For the median of the family, that was 5.5 percent of household income.

Of course, there are borrowers who struggle to make their payments. However, these borrowers can use existing funds to defer, reduce, or even have their debts canceled. By one count, there are 13 major student loan forgiveness programs. Some are aimed at those in civil service, education, healthcare, or the military; others allow borrowers to limit their payments to an affordable percentage of their disposable income. Bottom Line: The overwhelming majority of college loans are being paid back and there is help for debtors who get on over their heads.

Even amid the financial stresses caused by the pandemic, Americans are not drowning in debt, college or otherwise. Bloomberg recently noted that household debt is now lower than it has been in decades. Which suggests that even if the government became forgetting all student loan debt would not provide much fiscal stimulus.

What it would offer would be an unstoppable call for the government to erase other types of personal commitments. “Cancel rental. Cancel your mortgage. Cancel Student Debt, ”Rep Ayanna Pressley tweeted in July. And why stop here? There is a call from Matthew Walther, who writes for The Week, for a “debt anniversary” that would pay off $ 50,000 in debt for everything: “Credit cards, auto loans, remaining mortgage balances, and especially medical debt that should be discharged without limit.”

Children send lists of things to Santa for free, but adults know that Santa is not real. Santa Claus is also not the federal government. Washington cannot magically make people’s debt disappear; it can only force other people to pay them. It may or may not be good politics, but it is certainly a terrible economy.

Jeff Jacoby can be contacted at [email protected]. Follow him on Twitter @jeff_jacoby. To subscribe to its weekly newsletter, Arguable, visit bitly.com/arguable.

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