If Democrats pass legislation forgiving loans, the move might be popular with their educated progressive base, yet unpopular with many working-class voters. Student debt is largely owed by the wealthiest and best-educated voters.
Politicians promising that forgiving $1.6 trillion in student loans won’t affect the economy are selling a fantasy. We have added $6 trillion to the federal debt during the last four years, and probably much more before the books are closed on 2020 thanks to pandemic spending.
Public higher education costs too much and too many students exit or graduate with significant debts. I do not believe anyone attending a public post-secondary school, from community colleges through research universities, should owe any tuition or fees to these schools.
Yet, our twisted student loan program has turned into an essential form of funding for many public colleges and universities. Worse, these loans support questionable for-profit vocational schools and colleges.
State colleges and universities should be largely tuition free, and their degree programs should demonstrate a commitment to the needs of the states in which they are located. However, the voters in each state have the right to determine their priorities, which might not align with mine.
Most states have decided that college and universities should rely on tuitions and fees for their operational budgets. I might disagree, but voters don’t seem to be clamoring for tuition-free higher education at their state institutions.
I limit my tuition-free idealism to state colleges and universities. It confounds me that progressives who argue against “school choice” in K12 public education support state and federal grants being used to support private universities, though that is a different debate.
Who incurs student loan debt? The data suggest student loans benefit the highest income households. Those with the most debt are individuals who attended professional and graduate degree programs. Data also show people marry those with similar educational attainment, suggesting two people with graduate degrees might be a representative household with student loan debt.
Zack Friedman offered this analysis in Forbes:
Student Loans—Who Really Owes $1.6 Trillion Of Debt?
Zack Friedman, Forbes
October 25, 2020Who really owes $1.6 trillion of student loan debt? It’s not who you think.
Let that number sink in a bit. Yes, that’s $1.6 trillion in student loan debt weighing down our economy. That’s a lot of money that could be doing other things. Who owes that debt, however, suggest that the borrowers are benefiting our national economy because they tend to be well-educating high-income individuals.
Friedman notes that “ Brookings research and Federal Reserve data of federal student loans, which account for more than 90% of all outstanding student loans.” Private loans represent a fraction of student debt.
Two factors influence who owes and pays federally subsidized loans. First, repayment plans allow for income-based payment. Second, the largest debts are owed by the most educated individuals. The following data illustrate who owed and who repays student loans:
Highest-income households: owe 60% of outstanding student loan debt and make about 75% of all student loan payments.
Lowest-income households: owe less than 20% of outstanding student loan debt and make only 10% of student loan payments.
If any loan forgiveness plan were implemented, it should eliminate the debts of low-income borrowers, especially those who did not complete a college degree or vocational certification program. The ridiculous loan totals you might hear or read are not the norm.
Only 6% of borrowers owe more than $100,000 in student loan debt.
Only 2% owe more than $200,000.
Approximately 18% of borrowers owe less than $5,000 in student loan debt, which represents 1% of all student loan debt.
Eliminating 1% of student loan debt would not adversely affect the national debt or the annual federal deficit. For many of those owing less than $5000, such forgiveness would be significant and possibly life-changing.
Most debt, however, is for graduate school, not community college or four-year degree programs.
The latest data shows that 56% of student loan debt comes from graduate school.
Of the 56%, approximately 36% hold a master’s degree and 30% hold a professional or doctoral degree.
Progressive Twitterverse loves the idea of loan forgiveness. The white, urban, educated voters who dominate the echo chambers of cable news and digital media don’t realize how few of their fellow citizens would benefit from waiving federal student loans.
If $1.6 trillion in debt is forgiven, those debts guaranteed by the United States will become a gaping hole in the federal debt. That means taxpayers would be “bailing out” the most successful of their fellow citizens. Maybe nobody cares about the federal debt or annual deficit, though they will once interest rates and inflation start to rise. In an inflationary environment, transferring $1.6 trillion in debt from debtors to the federal ledger is going to become a political issue.
By the time pandemic-related spending is tallied, we might be facing an inflationary spiral like the 1970s. In that environment, “giving away money” to the highest-income households would be politically toxic.
Maybe, just maybe, Congress can fashion targeted loan forgiveness. The bigger question would remain: What would prevent another cycle of student debt crisis followed by demands for forgiveness?
