Is Student Debt Forgiveness Welfare for the Rich?

In a press conference last month detailing new “targeted” student loan forgiveness, President Biden floated the possibility of canceling much larger amounts of student debt for some Americans in the future. The Biden Administration has already committed to expanding loan forgiveness eligibility for several existing federal programs, which the Department of Education estimates is worth $17 billion. This amount also does not include student loan forgiveness that the Administration has promised to provide through reforms to Income Based Repayment programs. Yet, the Biden Administration has now expressed an openness to canceling even greater amounts of student debt through executive action. This should be alarming to anyone who cares about equity and the impact such actions would have on taxpayers.

Since the early days of his presidential campaign, President Biden has repeatedly promised to forgive a minimum of $10,000 in student loan debt. While this is less than the $50,000 many activists have advocated for, it could still erase student loan debt for up to nine million people. More importantly, the Washington Post has reported that the Biden Administration is open to providing relief to individual student-loan borrowers with incomes as high as $125,000 to $150,000 or $250,000 to $300,000 for couples who file joint tax returns. This is hardly a substantial cap on eligibility. In fact, the New York Post notes that the cap is “10 times the national poverty line” and would make a sizable number of the wealthiest Americans eligible for debt relief. This supports the notion that loan forgiveness is not truly about equity.

The reality is that loan forgiveness is a massive transfer of wealth from the American taxpayer to the upper-class. According to 2021 Census data, 85 million Americans, who were age 25 and older, had obtained a bachelor’s degree or higher. This is the equivalent of 37.9 percent of the population. In other words, 62.1 percent of Americans age 25 and older do not possess a college degree and receive no benefit from student loan forgiveness. This includes a majority of residents in all 50 states, with no state breaking even 50 percent. Massachusetts has the nation’s highest education attainment level with 44 percent of residents possessing a bachelor’s degree or higher.

To make matters worse, studies have consistently shown that educational achievement is strongly correlated with higher earnings. For instance, a recent report by Georgetown University’s Center on Education and the Workforce (CEW) found that adults with a bachelor’s degree earn on average $2.8 million during their careers, compared to just $1.6 million for those with just a high school diploma, and $1.2 million for those with no high school education. Adults with higher levels of educational attainment tend to see even greater earnings. This wealth gap is particularly pronounced when accounting for race and ethnicity since people of color tend to possess lower levels of education.

College graduates are also disproportionally from privileged backgrounds and tend to be better prepared to handle debt repayment. More often than not, a graduate’s future lifetime earnings will more than make up for any debt accumulation. According to a report by the Education Data Initiative, Americans with income over $74,000 owe on average $43,217 and possess 60% of all public student loan debt. In contrast, households that earn $35,000 or less a year hold just 20% of public student loans.

Yet, it is the issue of debt cancelation in particular that some senators are pushing the Biden Administration the hardest on. This is unfortunate because even mild income qualifications for debt forgiveness would still primarily benefit the wealthy.

Debt forgiveness is also not fair to those who have already worked hard to pay off their debts. While some Americans would undoubtedly benefit from having their debts erased, others would not simply because they did not graduate from college at the right time. Moreover, many Americans choose their school and degree program, based on financial considerations that would no longer be relevant under broad student loan forgiveness.

Most Americans are well aware of the high cost of attending institutions of higher education and therefore factor these costs into the decision of where to enroll. For instance, some Americans choose to attend community college initially and then later transfer to a traditional four-year college. This allows them to complete general education requirements while saving money on tuition. Some states, like Oregon, even subsidize community college through grant programs like the Oregon Promise Grant.

Americans may also choose to attend state colleges over private alternatives for these same reasons. According to US News & World Report for the 2021-2022 academic year, the national average cost of attending a private university was $38,185 while only $10,388 for a public university. This is a significant cost difference that almost certainly discourages some Americans from pursuing their education in a private university setting. It is not fair that people who responsibly considered the cost of college education would not be rewarded in the same manner as those less responsible with their college decision.

An individual’s degree choice also matters. Some degrees require far more schooling than others and that usually means greater student debt. For instance, a person who decides they want to be a doctor will need to complete a four-year undergraduate program, followed by medical school. In contrast, an engineer may only need to earn a bachelor’s degree. Both are valid career paths, but one is typically more expensive than the other. Treating them as though they are the same makes little sense.

Some degrees also provide a better return on investment. These types of degrees tend to quickly pay for themselves after the graduate spends several years in the workforce. Other degrees offer no such reassurance. This matters greatly when considering whether to take on student debt. While people’s subjective preferences and unique skill sets are worth celebrating, it is naive to assume that they carry equal risks.

Perhaps more important than any of these issues is the fact that debt forgiveness does not resolve the central problem of expensive school tuition. Each year, the cost of attending college or university continues to increase at an alarming rate. By taking executive action to forgive student debt, the Biden Administration would signal to these institutions that the amount they charge students is okay. Colleges would feel free to continue raising the price of tuition knowing that the debt incurred by students is likely to be forgiven anyway. In addition, any pressure that previously existed to reform higher education would soon dissipate, as the issue of outstanding student debt would no longer be pressing for most graduates. In other words, even if debt forgiveness grants some Americans temporary relief, it does nothing to lower college expenses in the long run.

While we will not know the Biden Administration’s final decision for several weeks, or possibly even months, there are plenty of indications that President Biden fully intends to honor his campaign pledge. This is unfortunate because doing so would largely serve to benefit the wealthy at the expense of the American taxpayer. It will also exacerbate existing inequities, something no American should want to see. Instead of issuing wide-scale debt relief, the Biden Administration should focus on the root cause of the problem and suggest ways to reduce the high cost of tuition.

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