President Biden recently signed an executive order to forgive large swaths of federal student loan debt. Borrowers with yearly incomes of under $125,000, or $250,000 for married couples, are eligible for $10,000 of debt forgiveness, while Pell Grant recipients are eligible for $20,000. Pitched by the Biden Administration as a way to ameliorate the harm done by the COVID-19 pandemic to working families, over 8 million people will have their debt automatically cleared, while millions more will be able to apply in October. Although debt forgiveness polls favorably – especially among younger voters – there is still vocal opposition to the plan, with many worried about potential economic impacts, along with issues related to the fairness of the plan.
Student Debt Forgiveness is a Regressive Policy
One of the more interesting gripes with debt forgiveness is that it disproportionately impacts wealthier Americans. After all, college graduates see a whole swath of benefits compared to those with no college experience. Graduate incomes are well above the national average, and their quality of life ranks higher as well. Critics argue that government policy should instead target poor Americans who live without the earning potential that college graduates enjoy. While it’s inarguable that debt forgiveness is regressive, that doesn’t make it bad policy. Not every economic policy needs to target elements of the population that are most in need – other policies can address these issues. For example, President Biden’ recent legislation – The Inflation Reduction Act – aims to lower prescription drug prices and crack down on wealthy tax dodgers. Though well-intentioned, the struggles that debt borrowers face should not get overlooked. The stress that student debt borrowers face is immense, and harder to quantify than something like yearly income. A 2015 University of South Carolina study showed that student loan debt has a devastating impact on young adults in the United States.
Canceling Debt will cause an Economic Crisis
The most common criticism of student loan forgiveness is that regardless of whether students “deserve” to live without debt, it’s bad policy that will add billions to the national debt, simply shifting a $379 billion burden from wealthy college graduates to taxpayers. Intuitively, this makes sense, but it’s thankfully not accurate. Because these are loans, not expenditure, the government has already spent this money when they issued the loans to the student borrowers.
Long after they graduate college, student debt is a constant source of stress for millions of people. Instead of imposing this unfair deal on aspiring young people, legislators and colleges should work to make university more affordable. Until then, giving slack to existing borrowers is the least we could do.
