Joe Biden has promised student loan “cancellation.” That means, “somebody else pays for it.”
The loan debt doesn’t just vanish into thin air. Rather, the money needed to “cancel” the loan debt comes out of taxpayer pockets.
The result of further nationalization of student loans would be a severe disincentive to keep tuition prices low, would be done with complete disregard of individual responsibility, would be an overall bailout for top American earners, and is an insult to those who limited their college experience and lived humbly for years while paying off their debt.
So far, Biden has come out in support of canceling up to $10,000 in student loan debt for each borrower. At a press conference, Biden said, “They’re having to make choices between paying their student loans and paying their rent… It should be done immediately.”
Senate Democrats agree. So much so that Sen. Minority Leader Chuck Schumer urged President-elect Biden to bypass Congress and cancel billions of dollars in student loan debt. Schumer explains: "I have a proposal with Elizabeth Warren that the first $50,000 of debt be vanquished, and we believe that Joe Biden can do that with the pen as opposed to legislation." Joe Biden has not ruled out using executive action to fulfill this policy goal.
Additionally, “The Squad,” made up of Alexandria Ocasio-Cortez, Ilhan Omar, Ayanna Pressley, and Rashida Tlaib, continues to pressure Biden to cancel student loan debt once in office.
As Nick Gillespie explains, “...one reason why tuition hikes have outpaced the general rate of inflation is that government-guaranteed student loans have helped to goose the costs.” Whenever given the ability to push off payments to the future, people tend to underestimate the financial burden they’re taking on.
Over the past few decades, colleges have driven up their costs by ramping up administrative spending while instructional spending remains stagnant.
When loans are guaranteed by the government, there’s no real steps that are taken to ensure the borrower can pay the loans back. In this way, for many students going into college, loans seem like a distant, almost negligible, cost they’re taking on.
Colleges have continued to raise their prices as they notice fewer students caring about the cost. Student loan cancellation would have even more severe effects. If students can expect their loan costs to simply be eliminated, colleges and universities will gladly take advantage of this unsustainable expectation. Ultimately, this “solution” would make the problem worse.
More importantly, though, is the sheer fact that loans are contracts. Students signed a dated contract, agreed to terms and conditions, promised to pay for it, and now, expect taxpayers to be financially responsible for decisions others have made.
Strong economies cannot be built on an expectation that those who make responsible financial decisions should subsidize those who do not. Strong societies cannot be built on systems which refuse to hold people to their word.
Next, despite the left framing student loan cancellation as another initiative to close the wealth gap, it disproportionately benefits the top American earners. According to the Brookings Institution, a liberal think tank, student debt cancellation could disproportionately benefit the top 40 percent of American households (those with incomes above $74,000).
The same analysis reported that 60 percent of American households would only get 34 percent of the benefit. Additionally, the top 40 percent of U.S. households owe almost 60 percent of the outstanding educational debt and make almost 75 percent of the payments. Meanwhile, the lowest-income 40 percent of households hold just under 20 percent of the outstanding debt and make only 10 percent of the payments.
This disproportionate effect is explained by the fact that many people who go to college come from wealthier families. Those who don’t tend to be more cautious about where they go to college. Many will choose community colleges or state schools instead of private institutions, despite the fact that those institutions may be considered more “esteemed.” In those students’ minds, they are sacrificing opportunity for affordability. Additionally, some people choose trade schools, or just don’t go to college because they understand the costs they’d be taking on.
For those who sacrificed their dream of going to college, going to a specific college, or those who worked hard and lived humbly for years to pay off their debts, it’s hard to imagine watching students who made less responsible decisions be awarded for doing so.
Student debt cancellation would send us deeper into debt, allow students to turn their backs on financial obligations they agreed to, would bail out American top-earners, and create an even more expensive college experience, thereby rewarding colleges and universities for taking advantage of their students.
Isabelle Morales is a communications associate at Americans for Tax Reform.