Wednesday, November 18, 2020


A few days ago, Rep. Alexandria Ocasio-Cortez was kind enough to send her spokesman (Senate Minority Leader Chuck Schumer) out to the microphones to demand that presumed President-elect Joseph R. Biden issue an executive order to discharge $50,000 of student loan debt for each person who incurred such debt.

That’s a terrible idea.

About 45 million Americans owe about $1.6 trillion in student loans. That’s almost $600 billion more than the credit card debt Americans owe, but is much less than the $9 trillion or so in mortgage debt that Americans currently hold.

About two-thirds of students have gone into some kind of debt to pay for college. While the average debt is about $30,000, about 6% owe more than $100,000. Just a quarter of student loans were incurred for graduate school, but they represent almost half of the $1.5 trillion total debt. The remaining 75% was incurred for undergraduate work.

The federal student loan program is, at its very core, regressive and inequitable, and a loan amnesty will make it even more regressive and inequitable.

First, a little more than one-third of Americans have a college degree. That means two-thirds don’t. Those two-thirds pay federal taxes that support the federal student-loan programs.

While the Congressional Budget Office has projected that the program will cost taxpayers $31 billion for new loans issued over the next decades, a more accurate calculation of what borrowers will get from taxpayers — through subsidized loan rates — is more like $300 billion.

It is important to note that over the course of a career, it is estimated that a worker with a bachelor’s degree earns about $1 million more than one without such a degree.

Therefore, those who will make less money over the course of a career pay for the choices of those who will make more. That’s the very definition of regressive and unfair.

Second, the question of regressivity also creeps into determining whose loans should be forgiven. There is already a system in place to forgive loans. It’s not good, but giving $50,000 to everyone who decided to get a student loan won’t make it better.

The Brookings Institution — hardly a bastion of right-wing thought — has noted that most of the benefits from Sen. Elizabeth Warren’s loan forgiveness program (what Mr. Schumer is essentially advocating) would go to the top 40% of households because they have incurred most of the loans. The bottom 60% of households holding debt would receive only one-third of the benefit.

Third, it is fundamentally unfair and inequitable to those who did and are doing the right thing — either paying off or having paid off their loans. It takes, on average, a little more than 20 years for people to pay off their debt. As a practical matter, that means that about 20 million Americans have paid off their loans in the last 10 years.

What should we say to those people? Thank you for working diligently for 20 years and honorably discharging your debts; if you had timed it just a little bit better, you could have gotten some of that free cash Uncle Joe is about to hand out?

What kind of moral hazard do we create for the next group who is thinking about taking out a loan? Should they assume that at some point $50,000 of their debt will simply vanish? Is that a wise and prudent way to proceed?

Finally, what do we say to those who decided to forgo their academic dreams because they chose not to incur student loan debt for financial, family, or other reasons? Tough luck? Your timing is terrible? Maybe next time?

How is any of that fair?

Mr. Biden has already been on all sides of this issue, so it is challenging to tell where he will ultimately land.

But simply waving away an individual’s obligation to discharge his or her debts, especially in a way that is regressive and punitive to so many other people, is wrong, damaging, and will create a political firestorm.

• Michael McKenna, a columnist for The Washington Times, is the president of MWR Strategies. He was most recently a deputy assistant to the president and deputy director of the Office of Legislative Affairs at the White House.

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