Progressives like Alexandria Ocasio-Cortez are urging President Biden to wipe out all student loan debt, warning that his reluctance to do so could hurt Democrats politically.
Americans now hold about $1.4 trillion in student debt, a real problem, and the idea of wiping it out all at once sounds appealing. But writing off a $50,000 debt with the stroke of a pen isn’t actually a good idea.
It’s not progressive, it’s economically regressive, because it gives big handouts that mostly help the upper middle class, not the poor. And that would only be a short-term solution – students are now borrowing money, so what happens to them?
Instead, Biden should target the loan forgiveness to those in need. Widespread cancellation of student debt is a costly and ineffective way to reduce economic disparities.
The wealthiest quarter of our population holds more than a third of all student debt, while the lowest-income quarter holds only 12%, according to the Urban Institute. And will the rich go ahead and borrow another $100,000 in the hope that someone will bail them out?
It is also deeply unfair for other reasons. First, how to give large alms and exclude people who have not done higher education, those who are in the most difficult financial situations?
Look at it from the perspective of someone who has taken out loans and just finished paying them back as well. Now the government announces that it will pay off all remaining student debt? You would be livid.
And it dishonors the sacrifices of people who have worked hard and organized their lives so as not to take on huge loans. They may have wanted to go to college but decided not to, precisely because they didn’t want to go into debt; or worked multiple jobs, lived at home, and went to great lengths not to borrow while in college.
“You would say, why didn’t I borrow that money? I declined a gift, but I had no idea it would be a gift,” says Sandy Baum, higher education specialist at the Urban Institute. These people would naturally feel ripped off, and the Republicans would have a field day.
Also consider that if we largely eliminated student debt, the people who would receive the biggest subsidy are those who took out the biggest loans to pay for expensive graduate degrees. This, in turn, helps them earn higher salaries so they don’t have as much trouble paying off their debt.
Yes, there are liberal arts graduates facing insurmountable debt, but those are the rare exceptions, not the rule, as David Leonhardt of The New York Times notes. The people most likely to default on their student loans are not graduates; these are people who went to college but never graduated. Now they are stuck with debt without the ability to earn a degree.
These are the people Biden should be helping. A blanket loan forgiveness program doesn’t make sense, but targeted action would. He could start with the victims of sleazy, for-profit schools that exploit the poor and award useless degrees after taking out federal loans — they shouldn’t have to spend their whole lives in debt. Low-income parents who have borrowed beyond their means to give their children a better head start shouldn’t either.
Proposals like these could be made responsibly and practically. But erasing all student debt solves nothing in the long run. It is a gigantic welfare program for the upper middle class.
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