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Is Canceling All Student Debt Fair? Yes. Here’s Why.

photograph of college graduation cap laying on top of pile of cash

In a recent interview, president-elect Joe Biden explicitly stated he intends to tackle student debt by proposing some relief to the borrowers. This statement gave progressives renewed hope of achieving one of their most dear and more radical objectives: canceling all student debt. But this possibility has reignited debate with arguments both for and against it.

“It’s Regressive”

Some argue that a reason against canceling student debt is that it’s regressive — meaning, it would disproportionately help the rich. Critics allege that “students from rich families tend to borrow more than students from poor families, since wealthy students disproportionately choose expensive private colleges where even rich families must resort to borrowing.” But this argument is not as clear-cut as it sounds, for three reasons.

It’s Misrepresentative

To start, as others have argued, “information on outstanding debt is based on where borrowers are after they have financed their college education, not where they started out.” In other words, the amount of debt that one takes counts as part of one’s own financial reserves. So of course if one takes on higher loans, then if this figures as part of one’s own wealth, then they will appear as richer. Think about home ownership: when one buys a home, the home counts as part of one’s own financial assets. If the home is worth 1 million dollars, then it will appear that the owner is worth 1 million dollars. This is the case even if the owner has a mortgage (which is debt). So, technically, the owner still does not own the house (if they are paying the mortgage) but the house nevertheless counts as part of their wealth. From this is clear that the regressive argument does not hold up, and is possibly misrepresentative.

It Lacks Context

But even if the regressive argument was on the right track (it is not, but let’s assume that it is), it seems to lack context as these arguments tend to discount the meaning that money (and consequently, debt) has depending on which economic community one belongs to. In this sense, canceling all student debt will undoubtedly benefit low-income communities. Saying that it will benefit the rich more is not a good reason for setting aside the policy, and confuses the current situation. Which leads me to the last point:

It’s Misleading 

There is something to say about the term ‘regressive’. To say that a policy is regressive usually indicates that not only it will give an advantage to people who are well-off but that it will be also punitive towards people that are not well-off. Taxing cigarettes for example is regressive because it primarily targets, and disadvantages, low-income communities which are the ones, as it has been pointed out, that tend to smoke the most. But canceling student loans would not hurt low-income communities, if anything, it will benefit them. So saying that the initiative is regressive is misleading.

“It Won’t Help the Economy Recover”

One reason to erase all student debt, as Sen. Elizabeth Warren has pointed out, is that it will stimulate the economy. However, some have suggested that canceling student debt will not necessarily yield that desired result. The reason why is that “forgiving student loans spreads stimulus out over time instead of pushing it all out at once because it eliminates a monthly payment. A borrower who owes $200 a month would get the same amount of relief this month, in the middle of an economic downturn, as they would when the crisis is over.” I take it that the rationale behind this claim is that it would be better to receive a substantive stimulus once, rather than receiving a smaller debt forgiveness spread over time. While the former will make a difference in people’s lives in terms of whether they spend it, a small debt forgiveness will not necessarily do that. If we are concerned about long-term solutions this argument seems right: better more money now then less money over time. But it is not clear that student debt forgiveness will yield less money. For example, a stimulus, let’s say $1200, received once will be outweighed by a smaller debt forgiveness that spreads out over years as it will eventually amount to more money.    

Personal Responsibility vs Structural Causes

Many of these claims are motivated by a misunderstanding as arguments against canceling student debt seem to hinge on the sharp contrast drawn between personal responsibility and structural causes. As others have rightly pointed out, those in favor of canceling student debt often attribute the crisis to “societal factors”, while those who side against erasing student debt often cite reasons that pertain to personal responsibility. The latter argument tends to emphasize that if one chooses to go to college and to take a loan, then it is one’s responsibility to pay off such a loan. Yet, this claim does not take into consideration that even granting that one does choose to go to college, societal factors – which go beyond individuals’ control – have dangerously evolved in ways that have shaped the student debt crisis. Among these factors are disproportionate tuition fees that do not reflect inflation, instead rising at twice the rate. This fact alone counts against the personal responsibility argument, as individuals themselves can hardly bend the inflation rate to their needs, but college cost is not the only thing that got more expensive. Healthcare premiums as well as housing costs rose, and that adds to the societal causes that have contributed to making student debt a crisis.

Finally, it’s also worth reflecting on how the opportunities that college education provides have evolved. In a society where more and more jobs require college education for jobs that did not before, it’s fair to question how “free” the choice to attend college is given that the lack of a degree rules out so many more opportunities than it did in the past.

“Don’t Get Loans You Cannot Repay”

But even if one is somewhat obliged to go to college in order to have the degree needed to do the job, another argument goes, then it is one’s own personal responsibility not to take loans one knows it will struggle to repay. Yet this line of reasoning, much like the one on personal responsibility above, discounts the role that predatory lending practices have played in shaping current circumstances. Those who take on student loans do not have access to the same escapes that those who are in debt usually have. One example is that, contrary to debt incurred due to medical bills for instance, the rules for easing student debt are considerably more restrictive. For example, in order to declare bankruptcy to ease student debt, borrowers are required to prove that repaying the debt poses an “undue struggle” on them and their dependents. If that was not bad enough, some loan providers exert predatory schemes that put students in particularly precarious financial positions. In 2017, for example, the Consumer Financial Protection Bureau accused loan provider Navient of giving out subprime loans to borrowers that in some instances the company predicted to have “as high as 92%” chance of defaulting. One cannot blame the students for not being vigilant enough to fall into the traps of predatory lending as this would be akin to victim-blaming. The students, even if not vigilant, do not commit any unlawful activity in taking on debts that they cannot sustain. Predatory lenders instead do. Thus, the attention should not be on the borrowed, but rather on the company themselves that should be held accountable for their irresponsible conduct.

Why Now?

But even admitting that student debt can and should be canceled, why should it be our priority now? As Carson Lappetito, president of Sunwest Bank, has claimed, our efforts should be targeting “the restaurants, hotels, front-line workers that are being most heavily impacted” by the pandemic. But canceling student debt of course does not imply that one should not help those communities that have been severely disadvantaged by pandemic; it simply means that, if anything, one should focus on both: impacted hotels, restaurants, front-line workers, and those whose lives continue to be upended by debt. The implication should be that by giving to one we are not taking from others.

One reason for easing student debt now is that there is a president-elect who is open to the possibility, and could do so simply through executive order. Even though some have pointed out that easing student debt through an executive order might not be ideal policy because it would “would invite a deluge of lawsuits,” the Legal Services Center of Harvard Law School carefully examined the issue and defended its legality, concluding that the “broad or categorical debt cancellation would be a lawful and permissible exercise of the Secretary’s authority under existing law.”

Canceling all student debt is an idea that is not new, nor it is the first time being debated. There are many arguments that speak in favor of it, and those against canceling all student debt are not, on reflection, as solid as they may seem. From a moral standpoint, as Roxane Gay as argued, “[a]s a public, we owe a debt to one another — the debt of belonging to a community. It’s time that debt was paid.”

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Cui Bono? Public Goods and College Education

photograph of campus building at the University of Tennessee

Pete Buttigieg recently caused a stir by arguing students from wealthy families should not benefit from any scheme that makes public college tuition free. This distinguishes his position on free college tuition from that of Bernie Sanders and Elizabeth Warren, both of whom have plans that would extend the benefit of free tuition to all students, regardless of the amount of money their family makes. Buttigieg motivates his view by appealing to an idea of fairness. How is it fair, he asks, that middle and lower-class families pay for the children of rich families to go to school? (Hillary Clinton expressed the same sentiment in 2016.) However, Sanders and Warren also motivate their plans by appealing to fairness. Sanders has argued since his 2016 presidential run that it is essential to each person’s ability to secure their future livelihood should not be hostage to how much money their family makes. With mutually incompatible plans each apparently appealing to the same moral concept, what can we make of the respective arguments?

Buttigieg’s plan is to offer free tuition to both two and four-year public institutions of higher education to those students whose family income is less than $100,000. Buttigieg argues that Sanders’ and Warren’s plans are not properly targeted at those who most need assistance and would moreover be wasteful due to paying for the education of students whose families could afford to pay for it. The sense of what is fair here is something like, “from each according to their ability, to each according to their need.” Wealthy families have the ability both to subsidize other families’ education while also paying for their own education. Less wealthy families need more assistance securing the resources to pay for their education. On Twitter, Alexandra Ocasio-Cortez criticized Buttgieg’s plan for misconstruing what sort of good a college education is. She argued “Everyone contributes & everyone enjoys. We don’t ban the rich from public schools, firefighters, or libraries bc [sic] they are public goods.” The sense of what is fair here is something like, “you pays your money you takes your choice.” Everyone who pays into a fund secures the right to draw on that fund for themselves if they decide to do so.

But what does it mean for something to be a public good? One way of explaining this is via the idea of so-called “neighborhood effects.” This term is used in economics to describe situations in which there is a forced exchange between parties. The typical example is that of an upstream polluter. If an individual or institution dumps materials into the water that make it undrinkable or otherwise inconvenient for people downstream to use those people are forced to accept the sullied water. This is true even if the upstream polluter offers to compensate the downstream people: they are forced between having dirty water and no compensation, or dirty water and compensation. But this is not a real choice. In the case of education (of at least the K -12 type) something similar happens. When a person is educated everyone else in society receives a benefit without bearing any costs. Educated people are better neighbors, workers, and fellow citizens. In this situation the educated person is forced into an exchange: educate themselves at their own cost (of time and resources) and benefit everyone else or don’t educate themselves at their own cost (of future benefit and improved quality of life). But this is not a real choice. Because each individual’s actions automatically affect the quality of the air and water supply of each other person (within a given area) air and water supplies are public goods. Likewise because each person automatically benefits from each other person receiving at least basic education, basic education is a public good.

In the case of neighborhood effects, even libertarian thinkers like Milton Friedman have argued for the acceptability of government administration and intervention. For education this takes the form of the government securing funds to create public schools by way of taxes or fees. This is how public K – 12 education is universally provided to children in the United States. Moreover Buttigieg agrees with this principle for K – 12 education. So why doesn’t he extend this principle to college education? Again, in line with the thinking of people like Friedman, Buttigieg thinks of college education as mostly beneficial to the educated people themselves, rather than society at-large. Because it benefits them personally, he reasons, it is appropriate for them to bear at least part of the cost which they can then repay by way of their increased post-graduation earnings. Moreover Buttigieg argues that a college education is not necessary for everyone, whereas K – 12 education is. To boot the people who choose to go to college, according to Buttigieg, are largely those from wealthier households anyway. He says, “Americans who have a college degree earn more than Americans who don’t. As a progressive, I have a hard time getting my head around the idea of a majority who earn less because they didn’t go to college subsidizing a minority who earn more because they did.” Hence he sees entering college is a form of risk that a person chooses to take, betting that their future earnings will make the risk worthwhile. However, society at-large ought not be forced to subsidize the risks of individuals if those risks will only pay off for the individuals themselves, rather than the whole of society.

What of Ocasio-Cortez’ critique, then? Is she wrong to draw an analogy between public services like firefighting and college education? The answer lies in how her claim that, “everyone contributes and everyone enjoys” is interpreted. In the case of a true public good the benefit everyone enjoys is a sort of generic, blanket benefit. If the mansion and estate grounds of a wealthy family catch fire, the fire could spread to the homes of the other citizens or at the very least pollute the air in the area with smoke. This is a neighborhood effect, which provides a basis for making everyone pay into funds to provide universal firefighting services. As she says, each person benefits from the provision of these services to every other individual. Likewise with K – 12 education: each person benefits from every other person gaining basic literacy, numeracy, and civics knowledge. The question, then, is whether each person benefits from every other person gaining advanced skills in literary analysis, theoretical physics, philosophy, psychology, and host of other disciplines college students can pursue. To understand Buttigieg’s “No” is to see the benefits stemming from college education as specific, non-blanket benefits that accrue primarily to each individual who chooses to partake rather than a generic, blanket benefit.

Because Buttigeig does not view college education as a public good, he does not think it is fair to make everyone pay so that everyone can enjoy it. Ocasio-Cortez explicitly views it as a public good, and so does think it is fair that everyone is able to enjoy it equally. Sanders and Warren also seem to implicitly view college education as a public good, given their policy proposals for free college tuition for all students. Because it is easier to quantify how individuals are benefitted by their own college education, Buttigieg’s plan has a certain appeal. But without completing the harder task of quantifying how an individual’s college education benefits society as a whole, or thinking beyond quantitative evidence, it is not clear that he can stave off criticisms like that of Ocasio-Cortez.

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Blame and Forgiveness in Student Loan Debt

photograph of campus quad with students

US Senator and presidential hopeful Elizabeth Warren has recently proposed a pair of debt relief efforts that aim to address the growing problem of student loan debt in America. The first proposal would cancel “$50,000 in student loan debt for every person with household income under $100,000” (with lesser reductions for those with higher household incomes), while the second aims to help prevent student loan debts from becoming a problem again in the future by eliminating “the cost of tuition and fees at every public two-year and four-year college in America.” Here I want to focus on the ideas behind Warren’s first proposal. Should student debts be forgiven?

Regardless of where one falls on the political spectrum, it is undeniable that mounting student debt is an enormous problem in America. Recent studies have shown that approximately 40 million Americans have student loan debt, and that student debt has become the second-highest category of debt, second only to mortgage debt. Although younger people have the bulk of student debt, individuals from all age ranges have felt the effects, such that “the number of Americans over the age of 60 with student loan debt has more than doubled in the last decade.” There are, of course, consequences to so many people having so much debt: if you are spending a significant amount of your income on repaying student loans then you are going to find it difficult, for example, to buy a house, or car, or save, or invest for your future. It’s also unclear what will happen if a significant portion of those with debt default on their loans, with some economists comparing the student debt situation to the mortgage crisis a decade ago. With student debt being an urgent problem, the idea of addressing it by implementing a debt forgiveness plan might then seem like a good first step.

There are many practical questions to be asked about the implementation of a debt-forgiveness plan like the one Warren proposes (she has, of course, thought about the details). There have been concerns with Warren’s plan, however, that aren’t so much about the dollars and cents as they are about blame and accountability. In answering the question of whether debt should be forgiven we need to first think about who is to blame for it.

A natural place to locate blame is with the students themselves. Here is an example of an argument that one might make for this view:

Those signing up for college know full well what they’re getting themselves into: they know how much college costs, how much they will have to borrow, and generally what that entails for repaying those debts in the future. No one is forcing them to do this: they want to go to college, most likely for the reason that they want a higher paying job that requires a college degree. It may very well be the case that it is difficult to be ridden with debt, but it is debt for which they are themselves accountable. Instead of this debt being forgiven they ought to just work until it’s paid off.

Arguments of this sort have been presented in numerous recent op-eds. Consider, for example the following by Robert Verbruggen at the National Review:

“Where to start with [Warren’s proposal]? With the fact that student loans are the result of the borrowers’ own decisions – often good decisions that increased their earning power? With the fact that people who’ve been to college are generally more fortunate than those who have not? With the fact that this discriminates against people who paid off their loans early, as well as older borrowers who have been making payments for longer?”

In another article, Katherine Timpf similarly claims that student debt should not be forgiven, and that student debt became such a problem only because students were “encouraged to take out loans that they could not afford in the first place.” Curiously, she goes on to claim that while Warren’s debt-forgiveness plan is “a terrible, financially infeasible idea,” it is nevertheless the case that it is a culture that encouraged over-borrowing that is ultimately to blame. It is difficult to make coherent sense of this position: if it is indeed a culture that encourages excessive borrowing that is to blame, then it is hard to see why all the blame should fall to the students.

That student debt is primarily the result of broader societal factors, and not that of bad decision-making, laziness, or unwillingness to “stick it out”, is the driving thought behind many of those who are in favor of debt forgiveness. There are undoubtedly many such factors that have contributed to mounting student debt, but there are typically two that are appealed to most frequently: the skyrocketing cost of tuition and the stagnation of wages. While Warren herself notes that she was able to afford college by working a part-time job, doing so in the modern economy is often very close to impossible. Without independent support it seems that students have little choice but to take out increasingly large loans.

Here, then, is where the ideological heart of the debate lies: those who argue in favor of debt-forgiveness will generally see the blame for the student loan crisis as predominantly falling on societal factors (like increased tuition and stagnated wages), whereas those who argue against it generally see the blame as predominantly falling on the students themselves. Presumably we should assign responsibility where the blame lies, and so depending on who we think is most to blame will determine whether we should implement something like debt forgiveness.

However, we have seen that there is substantial data supporting the view that the student debt crisis is largely attributable to societal factors outside of the control of the students. Furthermore, the thoughts that students are simply “not working hard enough” or “just want a handout” tend to be based on little more than anecdotes and bias (stories of students working multiple jobs just to make ends meet are readily available). This is not to say that students should not be assigned any blame whatsoever for their decisions to go into debt for their educations. However, it does seem that significant contributors to those debts are ones that are outside of a student’s control. As a result, it does not seem that students should be fully blamed for their debts.

Even if this is so, should we think that the best way to take responsibility for those debts is to implement debt forgiveness? As we have seen, some have expressed concerns that forgiving debts would be, in some way, “unfair”. There are two kinds of unfairness that we might consider: first, it might seem to be unfair to those who have already paid off their student loans through years of hard work; second, it might seem to be unfair to those who have to pay for someone else’s debt – Warren’s proposal to finance her debt forgiveness plan, for example, is to generate funds from a tax increase on the extremely wealthy, and one might think it unfair that these individuals should have to cover the debts of someone else. Would a debt-forgiveness proposal be unfair in these ways, and if so, is that good enough reason to say that it shouldn’t be implemented?

While these concerns about fairness might seem like appealing reasons to reject debt forgiveness, upon closer inspection they do not stand up to scrutiny. Consider the first worry: if a debt forgiveness plan is implemented it will indeed be the case that there will be some people who have just finished paying off their debt prior to the policies taking effect and so will not be able to take advantage of their debt being forgiven. It would then seem unfair to privilege one group over another, where the only relevant difference is that the former took on their debt later than the latter. But it is hard to see why this should result in not having any debt forgiveness at all: the argument that “well if I don’t get it, they shouldn’t either!” does not solve any problems. This is not to say that such unfairness should not be addressed at all – perhaps there could be some kind of reimbursement of those who paid off debt before it was forgiven – but it does not seem like a good enough reason to not offer any debt forgiveness to anyone. The second worry similarly fails to hold much water: unless someone takes issue with the idea of taxation in general, then there does not seem to be anything particularly unfair about having the extremely wealthy pay more to aid others.

There are, of course, many factors to take into consideration when considering something like a debt-forgiveness plan, and Warren’s plan in particular. Regardless, it seems that given the severity of the student debt problem, and that the factors that contributed to the problem are largely out of the control of the students themselves, that the responsibility for student debt cannot fall solely on the students themselves.