Judging by the discourse, many student debt cancellation advocates placed their hopes on Biden’s victory and expected his government to counter it Trump’s overt actions are on the rise Student Loan Debt. But disappointing compared to their hopes for many, Biden announced a modest relief plan of $ 10,000 per borrower, though even that is not included in his immediate legislative proposals.
There should be no debate about the need to reform the student debt and loan process itself. For example, in 2019, for-profit schools served only 5% of all students, but 22% of all student loans and about a third of all loan defaults. This is a business model, not an investment in education. And the abuse continues.
And while there are a couple of questions whether Biden’s team could reduce debt across the board – and I don’t think there are much doubts – they shouldn’t. That would be a startlingly bad policy for amazingly simple reasons.
College goers are usually still very wealthy and white. As a rule, they have clear advantages over the general population before, during and especially after their studies. Those who have a four year degree will, on average earn almost a million dollars more in lifetime than those who do not. About 40% of all student debts go to postgraduate studies, which go to people who already have a four-year degree and will earn even more with a postgraduate degree; they are the best positioned of the best positioned. The biggest indicator of whether a young person will go to college is when their parents did, which means that going to and graduating from college are isolators to intergenerational prosperity.
There is no good argument as to why this particular group of Americans who are going to do the best and give the best now too, should have priority for such a massive transfer of wealth from the treasury to their personal financial positions.
And all of this ignores the fundamental injustice why any policy would favor those who have outstanding credit as opposed to those who have not already taken on or responsibly paid off their debts.
What Biden should be doing instead of liquidating existing student debt is liquidating future debt.
Assuming he can cancel the student debt, at least the debt issued or guaranteed by the government, Biden and the country would be far better off announcing a plan to cancel the student debt that accumulated between now and August 1, 2024 .
First, it would be far more equitable for borrowers to cancel future debt than to do so afterward. When the rules are constantly changing, people cannot make good decisions. When people know that credit is being made – or not – they can act on it.
If acted accordingly, free credit would likely inundate colleges and universities with students looking to start, restart, or advance their academic careers with free money. Given the scarcity of schools and government budgets, a sharp increase in enrollments would be a lifeline. Vacations are being suspended, programs are being expanded, and teachers are being hired.
Most importantly, the policy that future loans will be granted de facto leaves the college free – all up to loan value. That, coupled with existing funding, is more than enough almost everywhere. Free college has been an overtly progressive political goal for years. And that is the landslide value of such a policy.
While debt relief would benefit those who have already attended college, a free college would spur millions of students into college. Removing the price tag would, or at least could, help people who never got a chance to college the first time or couldn’t get through it, like the GI law did. That, in turn, would make such a massive government subsidy a little less regressive – it would help everyone instead of just some.
Another benefit of a future forgiveness policy would be a good investment in human capital. As an investment in the country, millions of new college graduates would be on par with any major infrastructure program, building capacity and skills for generations. Few things could do so much for the nation’s future competitiveness.
Of course, the Biden team wants to set limits. There is no reason to make a loan abolition plan a payday for the for-profit colleges that have been abusing the state aid and loan system for some time. When millions of new and returning students flock to college with free loans, they shouldn’t be attending schools that can’t return value, and most for-profit colleges just don’t. Now, with better data, there are many ways to separate the quality choices from the others.
The bottom line is that if Biden and his team wanted to, they could fiat a version of the free college. A new GI legislation that is more limited in time but is broader in scope. This is a policy that benefits the country far more than paying college graduate’s existing bills.