CBS News (“Forgiving $10,000 in student debt could cost the U.S. $300 billion“):
The Biden administration is expected to announce this week whether to extend a freeze on student federal loan payments, and possibly even forgive some college debt for millions of Americans.
The plan under consideration by White House officials would cancel up to $10,000 in student loans per borrower, although that would likely be limited to those with annual income of less than $125,000. People who earn above that threshold wouldn’t qualify for forgiveness.
For both ideological and practical reasons, I think we should expect people to pay off loan agreements they voluntarily entered into. To the extent debt burdens are problematic, my druthers would be to refinance the loans at more reasonable interest rates. And, to the extent simply writing off the debt is desired, I would target those who were swindled by for-profit degree mills (the government should never have allowed its loans to go to those schools) or those who are in public service. Wiping out the debt for, nurses and schoolteachers after, say, four or five years in those occupations seems reasonable.
Now, a new analysis estimates the total cost of forgiving that debt: almost $300 billion in the first year, according to the Penn Wharton Budget Model, a group of economists and data scientists at the University of Pennsylvania who analyze public policy to assess their economic and fiscal impact.
By any reasonable standard, that’s a whole lot of money. It’s nearly half our defense budget.
The benefit of erasing billions in college loans would mostly go toward Americans higher up the income ladder, the analysis also found. More than two-thirds of the debt forgiveness would help people in the top 60% of the income distribution — or those who earn $82,400 or more per year.
That could raise questions about the policy’s fairness. According to the Federal Reserve Bank of St. Louis, median household income in the U.S. in 2020 was roughly $67,500.
This stands to reason since those who went to college tend to make more money than those who didn’t.
For instance, some experts have raised concerns that forgiving student loans may effectively penalize people who already paid off their debt, often while making considerable financial sacrifices. A program offering mass debt forgiveness for college graduates also may be seen as benefiting more educated Americans, while offering nothing to those who didn’t attend college.
College grads typically earn more than people with high school degrees — a boost that can amount to $1 million in additional income over the course of their careers compared with people without a bachelor’s degree, one analysis found.
Those are powerful arguments.
It’s also true that a lot of student debt is a function of going to expensive schools—and especially unfunded graduate and professional programs—without holding part-time jobs and debt financing a posh lifestyle while doing it. It’s rather absurd to expect blue-collar workers to subsidize writing that off.
At the same time, the argument for relief is not without merit.
At the same time, college grads have been weighed down by their loans, with more than 40 million Americans holding a combined $1.7 trillion in debt. Those loans have taken a toll on the economy as they force many grads to delay major financial and life milestones, such as buying a home or starting a family.
Some consumer advocates and grads have argued that $10,000 in loan forgiveness is insufficient, noting that the average amount of debt held by grads is about $38,000.
Some policy experts have proposed forgiving up to $50,000, but that would be far more costly than wiping away $10,000, according to Penn Wharton’s analysis. The price tag for the former would amount to $784 billion in the first year, assuming an income cap of $125,000.
The cost of running a debt-relief program would be incremental in following years, since the bulk of the forgiveness would occur in its initial year, according to Penn Wharton. For instance, under a plan to forgive $10,000 per debtor with a cap of $125,000 in income, the cost in the following year would be $3.7 billion.
It’s important for those of us over a certain age to understand that we managed to get through school with little to no debt because tuition was so much lower relative to median income until the last 20-25 years. For a whole variety of reasons, it’s a lot more expensive to run a university now than it used to be and state treasuries are contributing ever-declining proportions of that in subsidy, leaving it to parents and students.
Still, as noted earlier, my strong preference would be to target this much more carefully. And, while I understand the rationale for tying this to income, it would be absurd to make it all-or-nothing, with those earning $124,999 a year getting $10,000 and those earning a dollar more getting nothing. There should be a phase-out.
Regardless, spending hundreds of billions of taxpayer dollars is something that should have to go through Congress. The notion that the President could commit so much money simply on a whim stands the Constitution on its head.
