Last week we
mentioned the possibility that President-elect Joe Biden could use executive authority to simply cancel some student debt. At that moment — just seven days ago — it was getting a bit of attention, but this week a tsunami of policy and political analysis washed ashore.
The idea got covered in
the Washington Post. More than 200 organizations
urged him to take such action on his first day. We saw smart scholarly threads about it from
Judith Scott-Clayton (Columbia U.) who argued it was a
“trust and moral accountability issue” and from
Susan Dynarski (Michigan) who stressed that while the majority of loan
dollars are held by high-income people, the majority of loan
borrowers are much less well off.
Economists told us it
had a poor stimulus effect. People dusted off Justin Wolfers’
piece from 2011 arguing that this was the
“Worst Idea Ever.” Others said it shouldn’t be compared to the perfect student-loan reform, just to what is possible with a Democratic president.
Here’s the little-discussed thing I hadn’t thought as much about — we’re already canceling student loans. We’re just doing it very, very slowly.
Because that’s ultimately what’s going to happen for millions of the borrowers now in some form of income-driven repayment. Depending on the program, they’re going to keep making some partial payment for 10 or 20 years and then the government is going to forgive the rest of the loan.
In fact, roughly
three of every five student loans given out between 2013 and 2015 now have a higher balance than when they were originated. Pause over that stat because I think we can gloss over it too quickly. My mortgage balance got smaller (sure, maybe not a lot) over the last seven years. Your 2014 car loan got smaller, probably even got paid off a couple years ago. But nearly 60 percent of those student loans are bigger than when they started.
This is the real debt crisis, according to
Marshall Steinbaum, an assistant professor of economics at the University of Utah —
a crisis of non-repayment:
“The policy question is then not whether to cancel student debt, but how? Are we going to rely on increasing [income-driven repayment] and thus kick the ball further into the future, ruining more and more lives as we do so, while still not actually collecting on the government’s loans and potentially imposing a large tax liability when the debt is finally cancelled? Or can we honestly confront and solve a past policy failure in the present by cancelling debt now (and not taxing it), to prevent the debt spiral from getting any worse and rectifying the damage student debt does to household wealth?”
Here’s how he sees it: any debate about how best to structure debt cancellation has to be compared to a baseline of “escalating debt peonage, exacerbating wealth inequality, followed by inevitable cancellation.”
Of course, Twitter experts can keep debating the economics of this up and down. What about the guy soon to be in charge? Asked this week whether he would take executive action on loan forgiveness, Joe Biden declined to say — stressing instead that he supported proposed House legislation to forgive $10,000 in loans and promising to improve management of the Public Service Loan Forgiveness program.
