How Fair Would Student Debt Forgiveness Be?

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It’s all about the money. (Photo by Alfred Gescheidt/Getty Images)

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A debate from the 2020 election has reignited. On the internet and elsewhere people have begun anew to debate the question of forgiving student debt. Several Democratic strategists have told President Biden that he could raise his sagging approval ratings by going ahead with his campaign promise to forgive a big part of student debt. Aside from the usual partisan politics and issues of expense, much of the argument has centered on whether debt cancellation would be fair. Economics has a contribution to make here. It can show that debt cancellation would be far from fair on many levels including the fundamental inequity built into the college debt system. It also reveals how few among America’s elite think about those other than their neighbors and their circle of friends.

The fairness arguments to date seem to center mostly on how to treat those who saved for college or have already paid down a significant portion of their debt. Some commentators have argued that the only way to put all ex-students on an equal footing would be to include with debt forgiveness compensation to those who paid down their debt. Counter arguments to such questions point out that most new initiatives to help those in need do little to help those who suffered earlier. Alexandria Ocasio Cortez has weighed in, pointing out that not all government programs benefit all people. Though it is hard to argue with that statement, it, typically for her, offers little to the debate and sidesteps the question of equity altogether.

This debate so far has remained remarkably narrow. No one, it seems, has considered future students. If the nation forgives the debt incurred by yesterday’s college students, what in fairness should it do for those in high school today or grade school? Will equity to these future students demand that along with debt forgiveness for yesterday’s students, college becomes free, an extension of what today is K-12 public schooling? That would save them having to pay and then gain forgiveness of the debt at some future date. A full debate on equity would also need to go beyond how to apportion benefits and consider something often missing in such conversations: who pays.

Because the debt is owed the government, forgiveness would deny the budget a source of revenue. Forgiveness then would in one way or another burden all taxpayers. Those who have already paid down their debt, if left uncompensated, would not only miss the benefit, but they would also see a federal budget much less able to provide other services that they might need. Such a constrained budget would make it hard for others still less fortunate to argue for the services they need, many of them low-income people who never even considered college, perhaps for financial reasons. A single mother supporting her family off a meagre paycheck might prefer that Washington extend food stamp subsides rather than give up revenue from credentialed former college students. None of these alternatives are necessarily more worthy than helping indebted students, but a consideration of fairness surely demands that people consider these aspects of the question.

Concern for equity also demands a consideration of who has benefited from and continues to benefit from the student debt system. There unquestionably the answer is the universities, their faculties, and their administrators. The easy terms of student lending have increased attendance at colleges. Classrooms have filled and money has flowed for tuition and fees. This flood of students and money has further enabled colleges to raise their costs much faster than anything else in society, including healthcare. Today, the burden for these benefits rests on the debtor students. Forgiveness would shift that burden. But the fundamental fairness question about beneficiaries and those who pay would remain. Is it fair that easy borrowing for college has burdened families and young scholars and perhaps soon all taxpayers to enrich arguably the most privileged people in society?

It is easy to feel sorry for young people struggling with their finances, especially because many were duped into believing that their course of study would enable them to discharge the debt more easily than it has. But before rushing to indulge such pity at what is effectively the taxpayer’s expense, it behooves all involved to look broadly at whether the apportionment of benefits is fair and to look at whether it is fair to burden others in society who may be considerably less privileged than indebted students. Questions of equity also demand answers to questions about burdening so many for the sake of a relatively small and extremely privileged group.