Saturday, December 5, 2020

Student Debt Cancellation - Is This The Worst Policy Idea in History?

Since the first rumblings of the potential Biden administration, the idea of "forgiving" student loans has gotten talked about a lot; whether from Elizabeth Warren or AOC, we keep hearing "progressives" clamoring for the handout.  Clearly the loans can't be forgiven; money is owed to some bank, (which is to say some one) and the Feds can't wave their hands and make the banks take that loss, so that will mean taking money from some taxpayers to pay other taxpayers.  It takes a study from someone relatively neutral to show just how fair that is. 

The top 20% of income earners will get $192 billion in tax money; the bottom 20% will get $29 billion.  The richest income earners will get over 6-1/2 times the money as the bottom 20%.  Since the lowest quintile of income earners pays almost no tax and gets more in benefits than they pay, they are essentially getting a bigger tax break.  The middle class and higher will pay for this program.  Our tax system is highly progressive, meaning the more one earns the more tax they pay.  The last numbers I can find having blogged about (using 2016 data) is that:
  • The top 1 percent paid a greater share of individual income taxes (39.5 percent) than the bottom 90 percent combined (29.1 percent).
  • The top 1 percent of taxpayers paid a 27.1 percent individual income tax rate, which is more than seven times higher than taxpayers in the bottom 50 percent (3.5 percent).
This idea is a highly regressive tax policy in that the richer they are, the more tax payout they get.  The reason for the massive "payout to the rich" is pretty simple.  The concept of student debt is deceptive; it implies that the amount of debt is somehow evenly distributed.  That's beyond wrong, it's insanely simple-minded.  The average student debt for an associates degree holder from a state community college is tiny, the average debt for a state college bachelor's degree is a fraction of that from a private college, while the biggest piles of debt of all are held by graduate and professional degree holders.  While some graduate degrees don't gather enormous paychecks, Medical Doctors, Osteopaths, Lawyers and plenty of others gather pretty good pay.  If they didn't get that advanced degree, it's likely they wouldn't be in the top quintile.  Dollar wise, cancelling student debt is primarily going toward cancelling the debt in highest income quintile.

This study was from the University of Chicago (pdf) so not a conservative bastion, and studies from other dedicated liberal groups, like the Urban Institute, reach the same conclusion.

Lots of things about this idea have bothered me from the start.  The first problem I have is how unfair it is to so many people.  Think of the people who paid off their loans.  They took out a loan to pay for their college, paid it back, and now they're going to pay off the loans of people who didn't pay theirs off.  Or parents who paid for the kids' college with bank loans and will pay off other people's loans.  What about the people who thought the return on investment for a four year degree wasn't worth the expense and then went to a trade school.  Let's say they're welders making close to six figures.  Now they'll have the privilege of paying for someone else's Master's degree in "Feminist Poetry, 1912 to 1918" who's working as a barista at Starbuck's. 

Without exception, if you played by the rules, played it smart, managed your finances, and lived prudently, you're a sucker.  A chump.  You avoided student loans, or went through school with minimal loans?  Congratulations - you get to pay for those who didn't.  This is guaranteed to create enormous amounts of resentment. 

The second thing is that the root cause for the problem is federal government itself.  There are only so many seats for so many butts in all the colleges in America.  Demand for the seats exceeds supply, leading to the prices wanting to go up, but with student loans the price increases don't reduce demand.  The colleges raise fees to whatever they want knowing that the free market is prohibited there.  No matter how much it costs, the feds will back the loans so that they can fill all those seats.  It has been said before that if you really want to solve these problems, stop giving unlimited student loans. 

This is quite possibly the worst idea for public policy in history, although the competition for that award is pretty intense.  It's so close to the Free College idea it's hard to tell them apart, but it's retroactive free college.  It's completely opposite the real way to reduce student debt, if indeed that's the purpose. 


  1. Well, it is a way to get that Barista to vote Democrat forever even if they eventually grow up and understand the Real World.

  2. Yeah, the Ivory Tower version of the plantation.

  3. I have paid for 3 BS degrees, 2 masters degrees, and a specialist degree. My wife has the Specialist after we paid for her Masters. I got my BS with help from the GI bill and support from my wife. I paid for both my children to get a BS and one to get her Masters. There were no student loans. We paid for our education and those dipshits who borrowed money for a worthless degree need to pay for it.

  4. Is it the worst idea? Maybe. It's right up there with a $15/hr min wage.

    Actually, the $15/hr min wage is worse, as it destroys jobs.

    Forgiving student loans isn't the jobs killer a high min wage is.

    Loan forgiveness just increases the national debt. High min wage kills jobs and forces people on public programs, which costs much more and increases the national debt far quicker.

    F'in socialists and their 'progressive' programs.

    Ain't enough jet fuel to fly all the helicopters to Pinochet them all....

  5. If a student defaults, claw it back from the school. Make them have some skin in the game.

  6. The solution here is to get gubmint out of the student loan business. Obama should never have taken it over. Realize that each student loan pays a vig, like 2%, to Obamacare. Also, the gubmint sells the paper. About half my kids loans were sold to a private company. Those won’t be forgiven.

  7. Nobody is answering my question about this policy. Driven by greed, of course, I want to apply for my no-show college classes so that I can get as many free, paid back loans, as possible. I have no intention of ever crossing the threshold of a class. I can make an effort to do some sort of on-line grievance studies major from home in my spare times while I enjoy my new boat (which means Break Out Another Thousand), paid for by somebody else and new 3/4 ton pick-up, necessary to haul the yacht.

    Point me in the right direction. And maybe have somebody there to fill out the forms for me, I can't be bothered with doing it myself. Send me the check or direct deposit it...either way will work. I'll be a Negro Slavery Studies Major - working on my PhD and Post-Doc, I'm sure that I'll need at least a half a million in free loans to get the level of education that "I Deserve".

    1. PS - To make Beans happy, I also need a no-show $15/hr job. 40 hours a week in no-show work should be enough for me. I don't want to be greedy.

  8. Change the law so student loans are just like any other loans in a bankruptcy.

  9. I don't know if it's the worst idea, but it's definitely in the Top Ten.

    How about instead of forgiving their loans, we just repeal the 13th Amendment, and sell them into slavery at $5k/yr to repay their loans?

    Fair is fair.

  10. When I first applied to a college the Dean asked what my best subject was. History I replied. He said 'unless you want to be a teacher you won't be able to get work with a history degree, lets see what else interests you'.
    Colleges should be on the hook for these loans on worthless diplomas. From what I read most of these school have fabulous wealth hidden away from prying eyes. They should be liable. TeX

  11. Massive Suckah here.... worked my way through a BS AND MD. Private school for my 3 kids AND paid for their BS and graduate degrees. Yeah, I'm against it but realize the $400k in state and federal income taxes per year that I pay just is not a fair enough share. Please forgive me

  12. "This is guaranteed to create enormous amounts of resentment."

    Which is why you'll never see this kind of analysis in the MSM. I don't think the Left really WANTS full-blown class war. They just want the Right to surrender.

  13. End the student loan program. It does nothing but drive up tuition and it encourages colleges to create useless degrees so everyone can have a degree.

  14. Incentives matter. Consequences matter.

    Strangely, the Left again wants to disconnect cause from effect.

    Why am I not surprised?

  15. Forgive student loan debt for veterans only...heh the leftists reaction to that would be priceless