student loan Archives - Prindle Institute

May 6, 2022April 10, 2024

The Morality of Forgiving Student Debt

In March 2020, as the pandemic began, the federal government temporarily suspended student-loan payments and the charging of interest on student debt. Two years later, the suspension continues. There are now growing calls for student debt to be canceled entirely.

Forgiving student loans is a deeply controversial topic, as a few of our own writers have discussed. The policy raises difficult economic questions (would forgiving student loans beneficially stimulate the economy, or simply contribute to the already-high inflation?), political questions (would this be a political “winner” for the Democrats going into the midterms?), and also essentially moral questions.

Do the borrowers deserve forgiveness? Would forgiving existing loans be fair to those who have already paid off theirs? Would a government bailout of student loan borrowers be just when they tend to earn more than most taxpayers?

Both sides of the student loan forgiveness debate use the language of morality and justice to defend their views. On the anti-forgiveness side, it is common to hear expressions to the effect of “I paid mine. You pay yours.” How is it fair on those who worked hard, lived frugally, and repaid their loans that their lazier or less financially responsible counterparts get their loans bailed out by the government? It seems morally wrong to reward failure when it is the result of personal irresponsibility. Those who took out loans did so freely. Perhaps they ought to deal with the consequences themselves, rather than have those consequences shifted onto the taxpayer’s back.

Whether this is a convincing argument depends largely on whether you think those taking student loans are fully informed about the relevant information before making their decisions, and whether you think they are being financially exploited by the universities they are joining. If borrowers were exploited, then it seems just to forgive their debts.

First, some background. Student loan debt has grown rapidly over the past two decades, almost fourfold from $480 billion in 2006 to $1.73 trillion in 2021. Approximately 45 million Americans have student debt, an average of $39,351.

The U.S. Department of Education claims that 10 years is the ideal length of time to pay off a student loan. But, in reality, these loans take an average of 21 years to pay off. If you graduate at 22, you can be expected to be paying off your student loan into your mid-40s. And some student loans are far worse than that. The average Professional degree at a for-profit college takes a shocking 46 years to pay off — longer than most Americans are in the workforce. Even worse, some borrowers are unable to repay their debts. The default rate for the student loans owed to for-profit colleges is 52%, and 66% for African Americans.

The personal impact of crushing student loan payments can be severe and endure for decades. Given these possible long-term negative effects, perhaps the federal government shouldn’t be giving these student loans out in the first place.

The brain takes an average of 25 years to fully mature, but the life-changing decision to take a student loan is made by those as young as 18 years old. If these loans should have never been given, then forgiving them would be rectifying past exploitation.

Debt is also not solely the moral responsibility of the borrower; the provider bears some moral responsibility too. But federal student loans are available to almost all students with no requirements beyond meeting the program’s requirements. The government spends no time nor effort assessing whether the prospective student will be capable of repaying the loan, nor if the degree will be considered an asset. Both eligibility and interest rates are the same for the top-earning degrees (e.g., Petroleum Engineering, Operations Research & Industrial Engineering), and the lowest (e.g., Medical Assisting, Mental Health, Early Childhood Education), despite their vastly different risks of default. Is it really fair to give the burden of a student loan to a future low-paid Medical Assistant, on the same terms as a future Petroleum Engineer? If not, perhaps the federal government has failed to act responsibly in giving these loans in the first place, suggesting forgiveness is the moral choice.

But why should the government opt for forgiveness?

If you get into debt you cannot repay, our society has a system for escape: bankruptcy. It is a painful solution, but an essential one used by 1.5 million Americans each year. Isn’t this the solution to the student debt crisis? The problem is that this basic financial right is tightly restricted in the case of federal student debt. While some advocate changing bankruptcy law to include student debt, until those changes are enacted we are seemingly left with only one solution for those with non-repayable student loans: forgiveness.

Despite these considerations, there is also a strong case against student debt forgiveness. Student loans are not always exploitative. Used well, they can provide access to higher education to millions of Americans who could otherwise not afford it. In a world without student loans, we would expect fewer students from poor families to go to university. Most college students take student loans, and most are able to repay. The access to higher education that these loans can provide is often immensely valuable, both economically and personally.

Of course, an education is worth far more than its financial benefits, but even if we focus narrowly on the economic benefits of university education, those with a bachelor’s degree earn an average of $2.8 million over their careers, compared to $1.6 million for those with a high school diploma. In fact, every extra level of education is correlated with another boost to lifetime earnings. So, while some student loans are lifelong financial burdens, others act as financial life-rafts, leading borrowers to better lives in the broadest sense. Student loans can be irresponsible, exploitative and morally wrong, but they can also be transformative.

If student loans are neither inherently exploitative nor inherently beneficial, how can we assess blanket policies such as forgiveness? One way is to examine the effect of the policy through the lens of distributive justice — the question of what allocation of society’s wealth and resources would be equal, fitting, or otherwise just.

Congresswoman Ayanna Pressley appealed to the value of distributive justice in support of student loan forgiveness, calling it ‘a racial justice issue’, ‘a gender justice issue’, and ‘an economic justice issue’, and tweeting that “Black women are … the most burdened by student debt.” The implication is that Black women are unjustly disproportionately burdened by student debt, in part due to the existing racial wealth gap, and that forgiving this debt would make the country more just. Similarly, Senator Elizabeth Warren and Senate Majority Leader Chuck Schumer wrote that “Canceling student debt is one of the most powerful ways to address racial and economic equity issues. The student loan system mirrors many of the inequalities that plague American society and widens the racial wealth gap.”

Historically, Joe Biden has been fairly skeptical of such claims. In 2021, he told The New York Times, “The idea that you go to [the University of Pennsylvania] and you’re paying a total of 70,000 bucks a year and the public should pay for that? I don’t agree.” Despite the fact that Biden disagrees with Pressley, Warren, and Schumer, he too views the issue through the lens of distributive justice. But Biden believes distributive justice would not be served by a blanket policy of forgiveness. This explains the most recent proposals to be floated by members of the Biden administration, which consider much more limited and targeted debt forgiveness, aimed at those below a certain income threshold.

Biden has a point. Those who go to university earn, on average, significantly more than their high-school diploma holding counterparts. They also are much less likely to be unemployed; college graduates’ unemployment rate is now just 2%.

So how could it really help promote equality and distributive justice to bail out the debts of the high-earning university-educated elite?

Pushing this point further, the recent calls for student debt-forgiveness are seen by some as a disproportionately wealthy, powerful, and influential segment of society seeking to massively financially benefit themselves at the taxpayer’s expense. Is it right to force blue-collar taxpayers to bail out Harvard graduates? Megan Kelly recently put it like this: “There people are going to be… elite graduates… Why should I be paying for their education? I don’t want to!”

Congresswoman Alexandria Ocasio-Cortez has pushed back against these skeptical characterizations and defended the distributive-justice credentials of student loan forgiveness. She wrote that “Taking the school that someone went to college to is not really shorthand for the income of the family that they come from.” Martina Orlandi gives a similar argument here. The trouble with this argument is that when we talk about adults being wealthy, we aren’t generally talking about their parents’ wealth but their own. The first person in a family to have wealth is still wealthy, and we don’t think they should be taxed less because their parents were poor. Likewise, it is unclear why college graduates should have their debts forgiven because their parents were poorer than them.

At a recent town hall, Ocasio-Cortez provided a much stronger argument in defense of debt forgiveness as a vehicle for distributive justice, pointing out that most students from high-income families never take student loans: “if you are very wealthy, if you are a multimillionaire’s child, if you are Bill Gates’ kid, if you’re Jeff Bezos’s kid—Jeff Bezos isn’t taking out a student loan to send his kids to college.” If rich kids don’t take student loans and poor kids do, then it is clear that forgiving these loans should promote greater wealth equality.

To get a better grasp on these various conflicting claims about what distributive justice demands in relation to student loans, we need to look more closely at the statistics.

Black college students are indeed the demographic of students most likely to use federal student loans. However, Black Americans have significantly lower rates of college enrolment than White Americans. 29% of Black Americans aged 25 to 29 have undergraduate degrees, while 45% of White Americans do. Therefore, forgiving federal student debt would probably help narrow the racial wealth gap between college graduates, but it would most likely widen the racial wealth gap between Americans overall. Likewise, college students from the wealthiest families tend to take out fewer loans, while those from the poorest take out more. Forgiving student loan debt would, therefore, likely decrease wealth inequality between college graduates. But, in terms of income, the top 40% of households owe 60% of outstanding education debt and make 75% of the payments. The bottom 40% of households have only 19% of outstanding educational debt, and make only 10% of the payments. So forgiving student loans would likely increase the wealth inequality between Americans overall, even as it lowers wealth inequality between college graduates.

Intergenerational justice may provide a more convincing lens from which to defend student loan forgiveness. In 1970, the average in-state tuition for a public university was $394. In 2020 it was 25.8 times higher, at $10,560. Meanwhile, the federal minimum wage has risen by just 3.5 times. Instead of 5 hours of work per week paying for a year of tuition at an in-state university, it now takes 28 hours per week. The days of paying for college with a part time job are over. At the same time, employers now demand higher levels of education from their employees, putting this generation under immense pressure to take on educational debt to access the same jobs their parents worked with less education. In this context, student debt forgiveness can be seen as a way of mitigating the inequality between the generations — a way of transferring the nation’s wealth to younger Americans who have lacked the financial opportunities their parents had. Whether this is convincing or not likely depends on your view of government debt. Forgiving student debt would, effectively, nationalize the debt — add it to the total U.S. federal debt. But fiscal conservatives argue this would simply add to the burden of future taxpayers (i.e. young people and their children). If they are right, then student loan forgiveness could simply perpetuate generational injustice, rather than mitigate it.

Student loan forgiveness is a controversial topic for good reason. Student loans can be irresponsibly given and exploitative, but they can also be extremely beneficial. Forgiving them could reduce certain unjust inequalities in American society, but it could increase others. But this much is clear; the issue is not just political. It is also a debate about morality and about justice.

December 17, 2020December 14, 2022

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.”

May 20, 2019December 14, 2022

Blame and Forgiveness in Student Loan Debt

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.