The Basic Unfairness of Forgiving Student Loan Debt

(Leisa Thompson/The Ann Arbor News via AP, File)

One of the major flashpoints in Congress and the nation over the next year will be schemes to reduce or eliminate student loan debt. Senator Elizabeth Warren says Joe Biden has a “moral obligation” to cancel student debt. Her plan would forgive student loans for about 95 percent of debtors by canceling up to $50,000 of an individual’s indebtedness. Other Democrats want to cancel all student loans.

The moral hazard in canceling any debt is obvious — especially since the next generation of students is likely to pile up even more debt considering the rising cost of higher education. But in the case of student loans, it’s immoral to give some people a virtual free ride through college while millions of others worked hard and paid their own way through school. Where do they go for their refund?

Democrats have an easy solution: let the government pay for everything for everybody. Free college education for all looks great on a bumper sticker but the consequences are unknown. Would a college education be worth much if everyone had one?

Former students are excited at the prospect of getting out from under their loans. “No one ever told me my major in Comic Art wouldn’t pay me $100,000 a year!” Not your fault, here’s $50,000. Now, go and sin no more.

In truth, the people who would benefit most from tuition debt cancelation are — you guessed it — people who don’t need it.

The Hill:

The data make clear that student loan forgiveness provides massive windfalls to the well-off. The field with the most loan forgiveness per borrower is dentistry, where the average borrower would offload $250,000 of debt onto taxpayers. Borrowers in the field of medicine would have an average of $174,000 forgiven. And borrowers in law would have an average of $119,000 forgiven.

Progressives often portray themselves as fighting against attempts by the rich and powerful to hijack public policy to enrich themselves at taxpayers’ expense. So why, in the name of fighting for the oppressed, are they trying to send well-compensated dentists, doctors, and lawyers six-figure checks? While there are certainly dentists, medical doctors, and lawyers who are struggling with debt, many others are lavishly compensated and can afford to repay their loans.

This is not making light of the real dilemma for some younger adults. There is data to suggest that students with a lot of debt put off marriage, having children, and home buying. But there are ways to target those former students without giving your dentist a big fat payday.

Income-contingent payment plans and loan forgiveness schemes already exist in the U.S.  Increasing enrollment in such plans “or increasing these plans’ generosity is another option for targeted debt forgiveness,” and one that would actually benefit middle-income debtors more than their wealth counterparts, the authors suggest.

But full or partial loan forgiveness regardless of income and loan size would be “highly regressive, with the vast majority of benefits accruing to high-income individuals,” they conclude.

It’s not likely that full forgiveness of student loan debt will get very far on the Hill. But with radicals running the Democratic Party, you never know.