Student Loan Forgiveness Revisited
Contra Maxwell Tabarrok and Also Basically Everyone Else
I’ll clarify from the outset here that I’m still not wholesale endorsing student loan forgiveness, but I remain unimpressed by the fashionable counterarguments being marshaled against it: they don’t survive any genuine scrutiny, and yet they produce such widespread head-nodding.
recently went so far as to try proving that “[s]trong cases against student debt cancellation can be made based on the fundamental values of any section of the political compass.” Necessarily, the essay had some throwing-spaghetti-at-the-wall feel to it, and I commend the ambition, but despite all the spaghetti-throwing, I’m still sitting here confronting an embarrassingly blank wall. I maintain suspicions that a shared instinctive distaste for loan forgiveness among the commentariat is precluding any careful examination of these half-baked critiques. Here are some of the arguments Tabarrok offers.Costly and Insufficiently Progressive
As mentioned in my previous article, many anti-forgivers reach for leftist weaponry to attempt undercutting loan forgiveness in some kind of rhetorical coup de main, and Tabarrok is no exception: “Student debt cancellation is a massive subsidy to an already prosperous and privileged population. . . . We should be spending these resources on those truly in need, not the people who already have the immense privilege on an American college degree.” Others like
have expressed similar thoughts:[F]inally and most obviously, people with degrees are much wealthier on average than people without degrees, even if they have debt! I mean, isn’t that the argument for why we need to make this more accessible in the first place? So that more people can benefit from the higher lifetime earnings? How a policy which redistributes money to a mostly upper middle class and white group became a major left wing focus is mind boggling.
I’ve dissected the sundry errors inherent to this view before:
The statistical categories proffered by the anti-forgiveness folks aren’t so airtight either: arguing that new college grads are better off the modern non-college population doesn’t prove much–it’s like saying South Carolina is more mountainous than Nebraska–like, maybe that’s true, but I’m not going skiing in either place. Using lifetime earnings forecasts as an approach for deciding whether someone currently needs financial help is suspect, too: it’s like claiming JK Rowling never needed government assistance when she was penniless because someday she’d publish Harry Potter.
Moreover, the current US entitlement regime is largely a gerontocracy focused on transferring money to wealthy seniors, but it’s not like people are equally incensed about the inequity of mortgage interest deductions or whatever; the singular outrage elicited from suggesting we alleviate the debt burden of impoverished college grads because they someday might be wealthy is, by comparison, pretty strange. Most crucially, however, those recommending student debt relief would happily redesign the overall suite of government’s taxes and expenditures to be much more progressive than the anti-forgivers would like:
[A]ny complaint that some program is insufficiently progressive has to be viewed unseriously: conservatives regularly denounce economic equality as a valid policy-making aim in toto, and many will champion something like restricting government revenues to sales taxes—which are canonically regressive—not by asking everyone to stomach those regressive effects as some undesirable byproduct of the policy, but by extolling the elimination of progressive tax schemes as virtuous; reshaping the economic profile of revenue inflows is the very raison d’etre of their sales-tax advocacy. To critique Biden’s plan for being insufficiently equitable—as if it would be crowding out some lineup of redistributive ideas the anti-forgivers have teed up—is fatuous. In Contrast, the pro-forgiveness crowd would gladly cosign a smorgasbord of programs to adjust the overall blend of government activity to be more progressive. . .
Regarding the alleged costliness of the loan forgiveness, it’s hardly as outlandish as you might imagine (I go into more detail here). In sum, the idea that student loan forgiveness would be uniquely pricey or anti-progressive isn’t true, and the sacrosanct existence of programs like Social Security and Medicare makes the common disgust towards student loan forgiveness look pretty irrational.
Tabarrok also argues student loan forgiveness isn’t effectively altruistic: those monies could be funneled towards aiding desperately needy people in more measurable ways across the globe. But, for most people, this proves too much: the same logic could justify rerouting nearly any government spending towards similar charitable, cosmopolitan ends, improving survival odds or basic living conditions in distant locales; again, it’d certainly entail dismantling programs like Medicare and Social Security.
Moral Hazard
The most banal and misguided criticism of loan forgiveness is that it’s too myopic—that it’s a symptom-treating rather than a disease-fighting strategy, and it’ll ultimately exacerbate the problems by encouraging improvident borrowing. Tabarrok writes, for example, “If what you really care about is stemming the ill-effects of large and growing student debt, debt cancellation is a terrible policy. . . . It is a massive subsidy on student debt.” But this is a false choice: debt forgiveness isn’t being (or shouldn’t be) offered as a solution for curtailing lofty tuition rates and shortsighted loan-making—it’s a strategy for reducing existing debts, and nothing about that is incompatible with using other ideas like risk-sharing strategies or better repayment programs to handle those separable issues. As I’ve written before, “Who’s adamantly defending the current system from tinkering? Supporting loan forgiveness straightforwardly implies that you probably also support rehauling the mechanics that engendered this crisis.”
Conclusion
Tabarrok has other complaints, too: for example, he characterizes the Biden administration’s strategy to circumvent Congress as anti-democratic, but I don’t think Biden-specific critiques are germane when evaluating the underlying idea. Tabarrok also complains that using government debt to repay the loans would crowd out private investment, but—like so much of this stuff—that criticism isn’t particular to student loan forgiveness.1
Tabarrok additionally appeals to a shared dislike of university administrators, whom he thinks would be the recipients of these loan repayments, but that misunderstands the relevant funding mechanisms: universities are awarded the sums upfront and so already have the money. Maybe he’s suggesting that loan forgiveness would boost tuition prices and ultimately line the pockets of university bureaucrats that way, but again, there’s nothing about student loan forgiveness that precludes overhauling the loan-making and pricing systems generating this mess, and I remain perplexed why everyone is presupposing otherwise.
Overall, the essay is riddled with the same semi-contradictory reasoning that invariably plagues all of these anti-forgiveness take-downs, contending both that forgiveness would unfairly redirect funds toward affluent beneficiaries and that the would-be forgiven are feckless and undeserving because they’re incapable of repaying their loans. Apparently, we should expunge the whole practice of helping others from society because requiring help is reliable proof that you can’t deserve it. Ultimately, critics continue to overestimate the unique backwardness of student loan forgiveness, and I remain mystified by how deriding the idea incites such blinkered consensus, especially when predicated on these flimsy grounds. Again, I’m not endorsing student debt forgiveness here, but such confident rejection of it requires thoroughly amending the prevailing logic.
In fact, while this reasoning is applicable for most government spending, I’m unsure whether it applies equally here. When the government borrows money to build tanks or fund studies, those monies would have otherwise been available for private investment and development opportunities. In this case, however, wouldn’t repayment of student loans effectively hand that money directly back to banks (i.e., lenders) anyway?
This is a good post!
I'd basically respond by just biting all the bullets you set up. Yes I would also support reasonable plans to dismantle Medicare and Social Security and lots of other spending programs because they are incredibly costly, debt financed, regressive, and ineffective ways of helping people.
On Moral Hazard, I mostly agree that "there’s nothing about student loan forgiveness that precludes overhauling the loan-making and pricing systems generating this mess." But there's nothing about it which helps overhauling the systems generating this mess. It really doesn't help clean up the mess at all, it just moves it around and invites more people in. The moral hazard problem with debt cancellation is not that it prevents reform it's that it subsidizes something we want people to do less of and it will make the underlying crisis worse.
Great article. Really like the Harry Potter argument. It's surprising to me that the decision to forgive loans is not viewed from an investment thesis perspective. Quite a l ot of research that I have written about has shown that when students have their loans forgiven, they end up making better financial decisions, getting a higher paying job, which in turn increases tax receipts for all of us. We, as a society, can be better off when we cancel the debt (just like a growth company relies on equity and not debt)