Cancellation of student loan debt is wrong in many ways


If you loaned someone money to start a business that was making a lot of money, you’d expect it to be paid back, right? You took a risk and the borrower benefited. Federal student loans are so similar, only you didn’t choose to give out loans and now there is a movement that allows the borrower to simply keep the money – no less by presidential decree.

Democratic Sens. Chuck Schumer and Elizabeth Warren lead a call to the new Joe Biden administration to cancel huge sums of federal student debt. That means almost all of the student debt as the federal government – the taxpayer – is by far the largest provider of student loans. Schumer and Warren require up to $ 50,000 in loan cancellation on an unlimited number of state student borrowers. Schumer subsequently mentioned that eligibility is capped at $ 125,000 in income, which would only exclude about the top 10% of earners.

That would be a terrible policy on many levels.

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First, it would be obviously unfair. Getting in debt can be difficult, but why should someone take your money and take advantage of it and not at least make you healthy again?

And yes, borrowers usually benefit. The average undergraduate graduate makes about $ 1 million more over their lifetime than the average person whose education ends with a high school degree. Going beyond a bachelor’s degree, the payoff is even greater because someone with a professional degree, such as law or medicine, will earn about $ 2.3 million more over the course of their life. Meanwhile, the average federal student borrower debt is around $ 36,500. Substantial but small compared to the payout.

Borrowers are also usually people who have gotten off to a good start in life. Most of the student debt – 63% in 2016 – is held by people in the upper half of the income distribution. The richest 25% of Americans hold 34% of the debt. The numbers make it clear that mass student loan cancellation would largely help the wealthy.

But wouldn’t that be an economic stimulus that is particularly valuable in these economic times of COVID-19? The Schumer-Warren resolution touts it as such, but ignores one major problem: the Feds have budgeted on the basis of loan repayment. If it doesn’t, someone else will have to make up for the lost federal revenue. While a cancellation would earn the average borrower about an additional $ 250 each month, someone else would have to cut their own expenses or investments to send more money to Washington. So long, suggestion.

The people hardest hit by COVID-19 and its economic impact are not those with college degrees. It is people without her who work in jobs that cannot be done in the remote convenience and security of a basement. The restaurant worker needs more help than the accountant or lawyer. And of course, the only thing that will end COVID’s economic slowdown is the end of COVID-19 itself.

Mass cancellations would also harm university politics.

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America’s ivory tower is an overused building, and waiving student debts, far from solving rampant tuition inflation or the spread of water parks on campus, would only compound such problems. By taking money from taxpayers and giving it to students, government tuition allowances have enabled colleges to charge higher prices and often encouraged students to charge more expensive items that require such prices. A bulk cancellation would signal the students to borrow even more – they don’t actually have to pay it back.

After all, it is about the dictation of the president. There is an interesting debate about whether the laws in force allow an administration to declare almost all student debt forgiven. But even if this were technically legal, it would be an affront to democracy that the people in Congress should decide on such momentous matters as whether to give $ 1.6 trillion in taxpayers’ money to borrowers on a permanent basis.

Paying back debt can be difficult, but it is the right thing to do. When a president simply states that for-profit graduates can keep what is borrowed, it is the opposite of that.

Neal McCluskey directs the libertarian center for freedom of education of the Cato Institute and is co-editor of “Unprofitable Schooling: Examining Causes of, and Fixes for, America’s Broken Ivory Tower”. He wrote this for InsideSources.


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