If you lent someone money to start a business that made big bucks, you would expect to be repaid, right? You took a risk, and the borrower profited. Federal student lending is kind of like that, only you did not choose to lend, and now there is a movement to let the borrower just keep the money — through presidential decree, no less.
Sens. Chuck Schumer and Elizabeth Warren are leading a call for the incoming Biden administration to cancel huge amounts of federal student debt, which is close to all student debt since the federal government — read: the taxpayer — is by far the biggest supplier of student loans. Schumer and Warren have sponsored a resolution calling for up to $50,000 in loan cancellation for an open-ended number of federal student debtors.
This would be terrible policy on numerous levels.
First, it would be patently unfair. Having debt can be difficult, but why should anyone get to take your money, profit off it, and not at least make you whole again?
And yes, borrowers typically profit. The average bachelor’s degree holder earns roughly $1 million more over their lifetime than the average person whose education ended with a high school diploma.
Borrowers also tend to be people who started life pretty well off. The large majority of student debt — 63% as of 2016— is held by people in the top half of the income distribution. The wealthiest 25% of Americans hold 34% of the debt.
The Schumer-Warren resolution touts it as [an economic stimulus] but ignores a big problem: The feds have budgeted based on loans being repaid. If they are not, someone else will have to make up for lost federal revenue.
Meanwhile, the people most hurt by COVID-19 and its economic effects are not those with college degrees. It is people without them, working in jobs that cannot be done in the remote comfort and safety of, say, one’s basement. The restaurant worker needs help more than the accountant or lawyer. And, of course, the only thing that will end the COVID economic slowdown is the end of COVID-19 itself.
Mass cancellation would also damage higher education policy.
By taking money from taxpayers and giving it to students, federal student aid has enabled colleges to charge higher prices. Mass cancellation would signal students to borrow even more — they won’t really have to repay it.
Finally, there is the matter of presidential diktat. There is an interesting debate to be had about whether current statutes allow an administration to declare almost all student debt forgiven. But even if doing so were technically legal, it would be an affront to democracy, in which the people, represented in Congress, should decide such hugely consequential matters as whether $1.6 trillion in taxpayer money should be permanently handed over to borrowers.
Repaying debt can be difficult, but it is the right thing to do. Having a president simply declare that profit-making graduates can keep what they borrowed is the opposite of that.
Neal McCluskey is a scholar at the Cato Institute in Washington, D.C. A longer version of this article first appeared in The South Florida Sun Sentinel.