Evan Vucci/AP Photo
President Biden speaks about student loan debt forgiveness in the Roosevelt Room of the White House, August 24, 2022, in Washington.
When President Biden announced his administration would cancel up to $20,000 of student loans for most borrowers, it was no surprise that Republicans reacted with criticism. More surprising, though, were the sharp words from some in Biden’s own party, who called it “an astoundingly bad policy move” or “pouring … gasoline on the inflationary fire.”
These internal critics, many of whom are economists, have argued that student loan relief pits middle-class borrowers (or, in some versions, upper-class ones) against the poor, that it creates bad incentives for both future students and colleges, and that—as the quote above suggests—it will stoke inflation. But the strength of their reaction to student loan relief seems unusually vehement relative to other policies that benefit the middle class as well as the low-income, or that forgive debt of some kind. What is it about student loan cancellation that is so threatening to a particular worldview?
Debt, in general, triggers moralistic responses: We want people to follow through on obligations they have agreed to, and voiding those obligations makes us uneasy. Yet the U.S. has chosen to relieve the impact of specific debts many times, from taking on the “toxic assets” of overleveraged banks during the financial crisis of 2008 to debt relief for farmers who faced discrimination put into the recent Inflation Reduction Act.
Debt, in general, triggers moralistic responses: We want people to follow through on obligations they have agreed to.
Canceling student loan debt in particular, though, raises an additional set of issues. Though there are numerous student debt relief programs, like for borrowers whose institutions commit fraud, for borrowers who opt for public-service jobs, and for borrowers who become totally and permanently disabled, broad-based student debt relief challenges a broader way of thinking about higher education that has become ubiquitous. Policymakers view higher ed as a venue where students rationally choose to borrow in order to invest in their human capital, with the expected payoff of higher wages down the road.
In this way of thinking, which I elsewhere describe as part of an “economic style of reasoning,” the measure of good policy is efficiency: whether it achieves its goal at the lowest possible cost. If the goal is to help those who truly have no alternatives, then every dollar that goes to a middle-income family is wasted. Worse, it is actively harmful; for the model to work, those who make poor investments need to bear the cost of their choices.
Democrats who support this approach to higher education typically see it as a way to provide educational opportunity while incentivizing people to make “good” educational choices (ones that will lead to well-paying jobs) and avoiding unnecessary costs to government. They typically support changes to the student loan system, but prefer solutions like improving income-driven repayment, reforming the Public Service Loan Forgiveness program, providing better information about the payoffs of particular colleges and majors, and creating some outs for the “losers,” like allowing student loans to be discharged in bankruptcy.
But this approach has problems on multiple levels. First, it’s practically unrealistic. The current system is full of administrative burdens that make it hard to manage one’s loans or take advantage of existing programs to make repayment less onerous. These burdens, as Pamela Herd and Don Moynihan have amply demonstrated, fall disproportionately on the less advantaged.
This Kafkaesque system, which relies on private student loan servicers who have been found repeatedly to push up fees on borrowers and neglect informing them about more affordable options, has been on hold for nearly three years due to the moratorium on payments. The idea that we can quickly turn it into something simple, fair, and streamlined is, to put it mildly, optimistic.
Second, it ignores politics. Achieving a broadly progressive vision of social policy requires delivering benefits to voters. Student loan forgiveness is popular, especially among the younger voters who are more likely to receive it and who lean heavily Democratic. For Democrats to avoid losing control of Congress, votes need to be mobilized for November—in an election with implications not just for social policy but for democracy itself.
But even setting aside practicality and politics, the idea that we can more fairly finance higher education by encouraging people to become better investors in their human capital has failed. Many borrowers are 18 or 19 years old, making decisions that will have decades of financial impact. Borrowers finance college based on hope for the future and our culture’s promise that it will pay off, not on any systematic analysis. They make those decisions with very different access to information about how higher education works, and about what the pathways to well-paying careers look like. And they’re making them in anticipation of a future work environment that will likely look quite different from the past.
Pretending that those realities can be tweaked enough to make this system fair is simply unrealistic about both human behavior and social inequality. Even perfectly implemented, such a system would be rife with its own poor incentives—deterring the well-informed from pursuing modest-paying but socially valuable careers like teaching; ensuring that risky occupations like entrepreneurship and journalism are reserved for the very privileged; and increasing the cost of coming from a family that can’t pass on information about how to evaluate these choices.
Realistically implemented, it’s likely to be a worse version of what we currently have in place—where people struggle to follow the rules only to be caught on technicalities, and where they face decades of punishment for decisions they were told were good ones, but turned out not to be. There’s lots of room for debate over what a better, fairer way to finance higher education would look like. But in order to have that debate, we must first come to terms with the failure of not just the details of our approach to student loans, but our whole way of thinking about them.
