Monday, February 22, 2021

Politicians want $50,000 in student-debt relief: A good idea?

 Top Democrats, led by Senators Chuck Schumer and Elizabeth Warren, are calling on President Joe Biden to forgive student-loan debt up to $50,000 per person. 

According to the plan's proponents, $50,000 in debt relief would wipe out all college-loan debt for 36 million Americans. That would be an impressive achievement.

Moreover, forgiving $50,000 in student debt would particularly benefit women and people of color, who take on more debt on average than men and non-minority students. Under one interpretation of the proposal, parents who took out Parent Plus loans might also get relief.

Without a doubt,  student-loan forgiveness on this scale would be expensive. The federal government would be writing off  $1 trillion in student debt. But, as then Education Secretary Betsy Devos admitted more than two years ago, only one out of four federal-loan borrowers are "paying down both principal and interest" on the loans.  Writing all this debt off in one fell swoop would merely recognize reality.

Some policy experts argue that writing off all student debt--about $1.7 trillion--would be good for the American economy. In a 2018 report, researchers at the Levy Economics Institute of Bard College wrote that wholesale student-loan forgiveness would boost the Gross National Product by $86 billion to $108 billion a year over ten years. Released from their student loans, millions of Americans would see an immediate increase in their disposable income, permitting them to buy homes, save for retirement, purchase consumer goods, and start families.

So what's my take on the Schumer-Warren proposal? I think any action that gives meaningful relief to millions of struggling college borrowers is a good thing.  So if the choice is between the Schumer-Warren plan and no plan, I support the Schumer-Warren initiative.

But wiping $1 trillion of student debt off the government's books is no panacea for the student-loan crisis. 

First, there is the issue of fundamental fairness. Millions of Americans made enormous sacrifices to get through college with no debt--often working at part-time jobs to make ends meet. Millions more lived frugally in the years after graduation to pay off their student loans.

Somehow it seems unjust to reward people that borrowed to attend college when so many people worked extra hard to avoid debt or to pay it off quickly.

Second, for our government to wipe out a trillion dollars in college loans is an implicit admission that the college experience is not worth what the universities are charging. President Biden should not forgive a trillion dollars in student debt without insisting that the universities reform their operations.

What reforms are most urgent. In my view, colleges should stop grinding out expensive and often worthless graduate degrees. When Congress passed the GRAD Plus Act, it allowed people to borrow the entire cost of graduated education, no matter what the price.  As we might have expected, universities raised the price of their graduate degrees. They ginned out new programs: MBAs, Master's degrees in public administration, graduate degrees in gender and ethnic studies, and so on.

Second, we need to close down the Parent PLUS program, which has driven millions of moms and pops to the verge of poverty by taking out loans for their children's education that they can't discharge in bankruptcy.

In my view, it would be wiser to loosen the restrictions on bankruptcy relief for overburdened student debtors. People who took out student loans and obtained good jobs with their college degrees should pay back their loans. People whose lives were ruined by student debt could get a fresh start in the bankruptcy courts.

Surely all Americans can agree that postsecondary education should improve the quality of people's lives. College degrees that leave people with no job and massive student debt should not be subsidized by the federal government.

Let's forgive $1 trillion in student debt: The rubes will love us for it!



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