Student loan forgiveness won’t solve anything
Editor’s note: Thomas Irwin works for a faith-based, non-profit organization in Los Angeles focused on economic development.
Reading the tea leaves, it seems like it’s only a matter of time before the Biden administration pulls the trigger on a large student loan forgiveness.
The administration has already taken steps in this direction and is under intense pressure from activists to go further. However, caving in to this pressure would be a mistake: student loan forgiveness is a trickle-down economy dressed in progressive clothes, and large-scale forgiveness would be a disaster for economic equality, especially in my home state of California. .
Take Los Angeles, for example, where housing prices have already skyrocketed during the pandemic. One of the reasons for this is that new home buyers have used stimulus checks and pandemic savings to buy homes. Research shows that this price growth was disproportionately driven by college-educated remote workers who wanted bigger homes during the pandemic.
Debt cancellation would add fuel to the fire, as young lawyers and business executives would suddenly be freed from student debt and could use their sky-high incomes to out-compete others for a very limited inventory of properties. Given our city’s reluctance to enact drastic policy reform to increase housing supply, housing prices will simply continue to rise, excluding even more low-income people from our city.
During the pandemic, the divide in Los Angeles was stark. College-educated Angelinos could work from home and avoid exposure to COVID-19. Angelinos who did not graduate had to work in person, exposing their families to the virus. Now those workers are feeling the sting of inflation, in part because generous government stimulus in 2021 spurred inflation as more money chased the same amount of goods.
Analysts predict loan forgiveness will do the same in 2022, helping college graduates while hurting the most marginalized.
Student debt in America is a real crisis, but there are better, more permanent solutions to the student debt crisis. Writing checks to cover current and former student balances would only shift the debt burden from those students to the rest of the country. Why not start by fixing the structural flaws in higher education that led to the crisis in the first place?
The cost of higher education has reached insane heights.
The United States pays $31,600 a year for each student in higher education, almost double the $16,200 paid by other OECD countries. (OECD stands for Organization for Economic Co-operation and Development.)
At the same time, colleges are getting more creative in advertising master’s degrees that cost a fortune while offering almost no job market for graduates. We should seriously reconsider the assumption implicit in the current system that master’s degrees from elite schools are worth subsidizing with minimal scrutiny. We should stop subscribing to graduate programs that tangibly harm students while exploring whether cheaper alternatives like coding bootcamps can produce better results.
Extensive reforms like these will improve the situation for all long-term job seekers. However, canceling student loans will not solve these problems – it will only be a boon for those who are currently in debt. And it’s no secret. A 2020 poll of economists found no economists in favor of canceling student loans on substance.
Why is it? Simply put, debt forgiveness would be an extremely regressive policy. The Brookings Institution found that only 2% of student debt is owed by the bottom 20% earners. After all, those who earn the least in the job market tend not to have attended university.
On the other hand, about two-thirds of college debt is owned by borrowers in the top 40 percent. The same analysis found that holders of college debt are significantly better off than those with mortgage debt. Many heavy borrowers went to elite private undergraduate schools; others went to professional graduate schools.
10% of student debt is held ONLY by doctors, lawyers and MBA graduates. No one thinks they are really disadvantaged in our society. So why are we considering bailing them out?
In an attempt to thwart this criticism, proponents of student loan forgiveness cite research showing it would benefit Americans with fewer assets. However, this analysis is very misleading: these asset calculations include the student debt held by these borrowers without taking into account the increase in future income that these degrees will bring them. It’s the equivalent of looking at mortgage debt without looking at the value of a home!
Income is a much better measure of well-being in almost any political conversation.
If we are serious about creating equal opportunities for economically marginalized people, there are many bipartisan policies we should be considering now. We must prioritize long-term reforms that reduce the cost of housing, health care and education.
Adopting student loan forgiveness is a big mistake and won’t solve anything. Economic progressives should aim higher.
The author lives in East Los Angeles