My latest op-ed was published today, arguing that student loan forgiveness is not going to be a net benefit to our society. I encourage you to read the piece in full (I need those clicks!)
Now, I want to acknowledge that this take will probably upset some folks in my readership who are young, have gone to grad school, and have a sizable amount of student debt. But given the immense amount of pressure that has built to make this move in recent years, I thought it was worth voicing a note of caution and skepticism:
Reading the tea leaves, it appears that it is only a matter of time before the Biden Administration pulls the trigger on broad student loan forgiveness. The administration has already taken steps in this direction and is under intense pressure from activists to go bigger. However, to give in to this pressure would be a mistake: Student loan forgiveness is trickle-down economics dressed up in progressive clothes, and large-scale forgiveness would be a disaster for economic equality — especially in my home state of California.
Take Los Angeles, for example, where housing prices have already soared during the pandemic. One of the reasons for this is that new homebuyers used stimulus checks and pandemic savings to buy a house. Research is showing this price growth was disproportionately driven by college-educated remote workers wanting bigger homes during the pandemic. Debt forgiveness would throw fuel on the fire, as young lawyers and business executives would suddenly be freed from student debt and could use their very high incomes to outcompete others for a very limited inventory of properties. Given our city's reluctance to embrace drastic policy reform to increase housing supply, housing prices will simply keep going up, pricing out even more low-income individuals from our city.
During the pandemic, the divide in Los Angeles was stark. College-educated Angelinos could work from home and avoid COVID exposure. Non-college-educated Angelinos had to work in person, exposing their family to the virus. Now, these workers are feeling the sting of inflation, partly because generous government stimulus in 2021 turbocharged inflation as more money chased the same amount of goods. Analysts predict loan forgiveness will do the same in 2022, helping the college-educated while hurting the most marginalized.
I think most college-educated young 20/30-year-olds sometimes forget how few Americans have gone to college. While college completion rates have been steadily trending for the last 50 years, in 2020, only 32.9% of Americans over 25 have a Bachelor’s Degree. Moreover, in specific regions of the country, there is a vast amount of inequality in this number. For example, of the 700,000 people who live in the District of Columbia, almost 60% college-educated. But of the nearly 300,000 residents of the Eastside of LA, only 5.1% of residents have a bachelor's degree. So is it any wonder that policymakers in DC are biased on this question?
I will say that I am not someone who believes zero-sum power competitions between groups best explain the world. I have written before about how we talk about gentrification as a phenomenon in cities is often poorly framed. There is no reason to think that, in the long-run, different socioeconomic classes cannot live alongside one another peacefully in a neighborhood context. Likewise, there is no reason that economic growth and innovation cannot benefit all socioeconomic classes simultaneously. We live in a world where human ingenuity is not fixed; a society marked by functional political and social institutions can enable tremendous leaps forward in human well-being that all people broadly share.
But one of the fundamental precursors to this inclusive prosperity is policies oriented toward growth and abundance, not scarcity. In a world marked by scarcity, the implication of every policy decision becomes zero-sum. And unfortunately, right now, we find ourselves in a world not just of housing scarcity but scarcity across our economy (energy, labor markets, durable goods). We have widespread inflation in our economy because we have too much money chasing too few goods. And to oversimplify, in an inflationary world marked by scarcity, governments must be very careful with policies that hand one particular group of people a pile of cash. Not only will that cash contribute to prices rising, but it will come directly at the expense of those who are not getting that cash.
My article goes on:
Student debt in America is a genuine crisis, but there are better, more permanent solutions to the student debt crisis. Writing checks to cover the balance of current and former students alike would only shift the debt burden from those students onto the rest of the country. Why not start by fixing the structural flaws in higher education that led to the crisis in the first place?
The cost of higher education has risen to insane heights. The US pays $31,600 a year for every student in higher education, almost double the $16,200 that other OECD countries pay. At the same time, colleges are increasingly creative in advertising master’s degrees that cost a fortune while providing almost no job market for graduates.
I want to pause for a second for emphasis: I don’t think there has been enough emphasis on how terrible the return on investment of going to grad school in the majority of cases. I could not include this in the piece, but the Wall Street Journal piece I cite contains a fact that is genuinely unforgivable:
Recent film program graduates of Columbia University who took out federal student loans had a median debt of $181,000.
Yet two years after earning their master’s degrees, half of the borrowers were making less than $30,000 a year.
As I argue, there is no justification for federal government dollars underwriting these programs, and graduate school as an entire institution is ripe for a wholescale re-thinking (as I hope to write about sometime soon):
We should seriously reconsider the current system's implicit assumption that master's degrees from elite schools are worth subsidizing with minimal scrutiny. We should stop underwriting graduate programs that are tangibly harming students while exploring whether cheaper alternatives like coding bootcamps can produce better outcomes. Broad-based reforms like these will make all job-seekers better off in the long run.
It’s worth noting, though, that research shows that the vast majority of people who ended up in bad debt situations can take advantage of existing forgiveness programs. Income-based forgiveness programs already do a reasonably good job discharging the debt of low-income, high-debtors. These programs could be reformed to be easier to access and less impactful on other areas of life. Better yet, repayment should ask universities to pay back some portion of the tuition dollars they got from the federal loans in the first place.
Polls show that while Americans tend to be divided on whether to forgive loans, the vast majority think that we should be trying to fix the system more broadly. The problem is that student-loan forgiveness won’t fix the root problem, something that the
However, student loan forgiveness won’t solve these problems — it’ll merely be a windfall for those currently holding debt. And this is no secret. A 2020 poll of economists did not find a single one who supported student loan forgiveness on the merits.
And worse yet, activists have been pushing broad forgiveness, not targeted forgiveness. Wide forgiveness would disproportionately benefit the well-off:
Why is this? Simply put, loan forgiveness would be an extremely regressive policy. The Brookings Institution has found that only 2% of student debt is owed by those in the lowest 20% of earners. After all, those who make the least amount in the labor market tend to have not attended college. On the flip side, approximately two-thirds of college debt belongs to borrowers in the top 40% of income earners. The same analysis found that college debt holders are significantly better off than those who own mortgage debt. Many large borrowers went to elite private undergraduate schools; others went to professional graduate schools. A full 10% of student debt is held ONLY by doctors, lawyers, and MBA grads. No one thinks these are truly disadvantaged in our society. So why are we considering bailing them out?
In an attempt to doge this critique, advocates of student loan forgiveness cite research showing that it would benefit Americans with fewer assets. However, this analysis is highly deceptive: These asset calculations include the student debt held by these borrowers without accounting for the boost to future earnings these degrees will earn them. It’s the equivalent of looking at mortgage debt without looking at the value of a house! Income is a far better measure of well-being in almost all policy conversations.
Unless you think the Brookings study that I cite is an outlier, consider this paper from economists at the University of Chicago:
Is this an argument that we should be mean to people with student debt? Not at all. But the main problem with student loan forgiveness, even beyond its potential unintended consequence, is that it represents a fundamental failure at prioritization. You have to make hard choices in a world of rising inflation and very little fiscal room for the federal government to maneuver. Sometimes that means not spending money on things that are not the most pressing social problems:
If we are serious about creating equal opportunities for the economically marginalized, there are numerous bi-partisan policies we should consider right now. We need to prioritize long-term reforms that bring down the cost of housing, healthcare, and education. Embracing student loan forgiveness is severely misguided and won’t solve anything. Economic progressives should aim higher.
For those still unconvinced, I argued in February of 2021 that the Biden rescue plan should not include $1400 checks because it was dumb to spend money on something that had little justification:
I wish I could say that I was prescient enough to predict that those $1400 checks would be a significant factor in inflation (I did not see that coming). My argument was one of prioritization: we do not have the time or money to tackle every social problem, and trying to do populist things with no policy substance is terrible. Whatever temporary uplift Joe Biden got from those checks has been erased by all the economic problems of the last 15 months. Yet many still wrongfully seem to believe that student loan forgiveness will be a political winner. Why? I ultimately think it comes down to fundamental biases in the media and policy world. that is also the point: one of the fundamental realities of contemporary politics is the outsized voice and political power that those educated at elite institutions have over our politics. Jerusalem Demsas put it well in her piece on the subject, where she is slightly more sympathetic to the policy merits of the issue, but 100% nails the underlying politics of the issue:
College-educated voters are not just dominant within the Democratic Party; they also dominate the media and, naturally, academia—two institutions that have significant power over what issues are brought to the fore. Importantly, academia and media have also become notoriously unstable work environments lacking sufficiently well-paying jobs. The demographics and precarity of these fields are likely playing a role in the prominence of the student-loan-forgiveness debate.
There are many good proposals for how to forgive student debt, particularly targeted programs aimed at helping those who attended predatory institutions or those who never received a degree and thus missed out on the higher earning potential that comes with it. But the issue’s prominence in our discourse has less to do with its merits than the changing political landscape that has stymied legislative efforts and given college graduates agenda-setting power.
This is something the elites reading this newsletter should think long and hard about