Michael R. Strain:
Canceling student debt is a terrible idea. Over half of student debt is
held by graduate-degree holders, while only 14% of adults hold graduate degrees. One in every five dollars of education debt is held by the 3% of adults with professional or doctoral degrees. I would be shocked if forgiving the student loans of high-income, highly-educated professionals resulted in any measurable increase in entrepreneurship, dynamism or economic growth.
Even if it did, it would still be a bad and bizarre use of taxpayers' dollars. Americans
hold about $1.6 trillion in student debt, and forgiving balances of up to $50,000 has been
estimated to cost around $1 trillion. I can think of several dozen uses of the marginal tax dollar — and the marginal $1 trillion — that would be better for the economy and for society than giving a grant to surgeons and lawyers.
Noah Smith:
First of all,
based on the proposal for Biden to cancel up to $50,000 per person in student debt, you don't have to worry about high earners getting hundreds of thousands of dollars forgiven. Most of the $1 trillion won't go to doctors and lawyers.
Meanwhile,
the majority of student borrowers are lower-income Americans, some of whom completed college, some of whom dropped out (possibly because of the cost). This only stands to reason; talented people who come from modest economic backgrounds don't have parents who can pay their way, so they have to borrow in order to get an education and better themselves. These are
exactly the sort of talented people with scarce resources that have the greatest unfulfilled economic potential.
Michael R. Strain:
Our system of education finance does need updating, and we are in complete agreement on the need to advance economic opportunity to more low-income young people. But it takes a wide leap to get from there to canceling student debt, which would only benefit people who
already have an education.
Limiting the grant to $50,000 does little to assuage my concern. While, as you say, a majority of borrowers may be low-income, the majority of student debt is held by high-income professionals with graduate degrees.
Noah Smith:
When student debt relief per person is capped, it doesn't really matter that the majority of loan dollars are held by high-income professionals. Each of them can only get relief up to the cap. That means most of the overall loan forgiveness will be spread out evenly among borrowers, most of whom have only modest income. If you're still worried that a $50,000 cap is too high, lower it to $30,000. In any case, haggling over this limit, when so many low-income Americans are being held back by their student loans, smacks of being penny-wise and pound-foolish.
You also raise the issue of fairness, which is definitely going to be politically important. People who already paid off their loans might feel cheated if those who delay repayment get their debt forgiven. The solution is to offer rebates to people who paid off their loans early. That way, those people still get rewarded after the fact.
Ultimately, concerns over regressivity and fairness seem like only minor hurdles to me. They're easily fixed with small tweaks to the loan forgiveness policy.
