Student Loan Forgiveness

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Student loan forgiveness is the Democrats’ version of trickle-down economics

On Nov. 7, in his first address after being declared president-elect, Joe Biden promised to be “a president for all Americans.” In such polarized times that have elicited Civil War-like division, it’s important that the president-elect stick to his promises and provide stability for all Americans.

However, the Biden Administration is already moving to enact policies that pander to the Democrats’ voter base, echoing the same partisan actions of the Trump Administration, such as the politically charged targeting of blue states in the 2017 tax cut, that have effectively extinguished bipartisanship both in Washington and throughout our nation.

Prominent Democrats such as Chuck Schumer, Elizabeth Warren and Alexandria Ocasio-Cortez have recently pushed for Biden to sign an executive order that would eliminate up to $50,000 in outstanding college debt for each borrower. According to Education Data, that college debt totals over $1.6 trillion for borrowers, and out of that total, there are 44.7 million student borrowers who are in debt by an average of about $37,500 each—an exorbitant amount of money that is certainly an untenable burden for many. However, digging deeper into the intricacies of this widespread college debt proves that this proposal is nothing more than a tax cut for those with the highest income—the Democrats’ perverted version of trickle-down economics.

Americans who attend college are generally upper-middle-class or higher, as the most affluent households with the highest incomes hold 34 percent of all outstanding education debt, per the Urban Institute. In fact, a clear majority of the nation’s educational debt—almost 60%—is owed by households in the nation’s top 40 percent of earners, or those with an income over $75,000, according to the Brookings Institute

Meanwhile, most of the working-class poor are not college graduates. More than 70 percent of unemployed workers do not have a bachelor’s degree and 43 percent did not attend college at all, per the Committee for a Responsible Federal Budget. Accordingly, households in the lowest-income quartile only hold 12 percent of the outstanding college debt, according to the Urban Institute

College debt forgiveness will not benefit the working-class Americans—who face economic despair and the threshold of poverty on a daily basis—in the way that more direct relief, such as more stimulus checks or a universal basic income, would. 

A joint study on college debt forgiveness by Sylvain Catherine and Constantine Yannelis from the Wharton and Booth Schools of Business, respectively, revealed that the “universal and capped [debt]forgiveness policies are highly regressive, with the vast majority of benefits accruing to high-income individuals. … Forgiveness would benefit the top [income]decile as much as the bottom three deciles combined.”

In fact, this policy of forgiveness will be, in part, paid for through the taxpayer money of Americans in lower-income groups who derive no benefit from it. It’s fundamentally unfair to force working-class Americans—most of whom were not afforded the opportunity to attend college—to pay for the education of statistically more prosperous people. It’s the equivalent of making renters on the verge of being evicted pay off the mortgages of people who could never dream of such financial distress.

Carol Roth, the head of Intercap Merchant Partners, expands on this point: “We have to move away from governments picking winners and losers. The government shouldn’t be doing that, and it’s not fair to have people who decided not to go to college, whether it’s directly or indirectly, bearing the burden for the situation they had no role in causing.”

The Democrats’ proposal is an inefficient, counterproductive way to help Americans on the bottom of the economic food chain whether or not they attended college—hence, the “trickle-down” name.

Democrats should pursue fairer, more innovative solutions to more efficiently forgive college debt. Wiping the debt slate clean would throw away money—as well as punish those who diligently worked and saved to pay off their debts—instead of addressing the rising cost of higher education. The solution to America’s ballooning cost of education is not to subsidize it by having the government forgive student loans. Instead, Democrats can introduce policies to increase financial transparency and risk awareness for the students who choose to take out loans to prevent them from paying for an obscure degree. They can smooth out aspects of the confusing, somewhat predatory financial aid process and resolve the widespread lack of clarity on how debt repayment works. They can implement more practical options for taming debt and increasing access to college-level education: more income-based debt repayment plans (which only 43% of undergraduates know about, per Forbes), more employer-based student loan repayment through companies such as Peanut Butter, an expansion of the existing loan forgiveness programs, increased funding for public colleges, more trade schools and vocational training, lower federal interest rates equivalent to those of banks and tax code reforms that would allow employers to allocate more salary to debt repayment as part of compensation packages and those in debt to classify educational costs as expenses (akin to how business do with construction), all of which would avoid the inequitable, rich-friendly government assistance that is the Democrats’ forgiveness plan.

But the main issue with such a bold proposal lies in the Democrats’ trivialization of the working-class Americans who likely skipped college because of its prohibitive costs. Those who are not college-educated—65% of Americans, according to the U.S. Census Bureau—already have lesser-paying jobs (per Pew Research), have higher unemployment (per Pew Research), have less social mobility (per Carnegie), have increasingly less economic leverage (per the APLU) and have been suffering disproportionately more than those with college educations during the economic recession (per the National Skills Coalition).

Clearly, there is a “diploma divide,” and considering that the Democrats’ base consists largely of college graduates, according to The Daily Yonder, there is an inherent conflict of interests on the part of the Biden Administration. If the Democrats give relief strictly to the college-educated electorate, they are failing to see outside the bubble of some of their constituents and, according to the joint study from the Wharton and Booth Schools of Business, widening the growing disparity among economic classes.

Democrats should pursue more just policies for all working-class people. If Democrats pay off $50,000 in debt for college-educated Americans, then they should also be handing that much in proportional taxpayer funding, not crumbs from ineffective social programs, to the rest of the working class to help those people simply put food on the table and make the next month’s rent. If that spending is not practical, then neither should be student debt forgiveness. 

Former Presidential Candidate Andrew Yang further expounds this unjust distribution of debt forgiveness: “[O]nly 35% of Americans go to college. You would want to do something for the other 65% too.”

Many of my peers and I will be going to college next year and most likely taking out costly student loans. However, we are taking out those loans for a reason: to go to college and (hopefully) climb the socioeconomic ladder. Our expenses shouldn’t be forgiven instead of providing necessary financial support to those who were not afforded the same opportunity. We should prioritize the 59% of Americans who are literally one missed paycheck away from financial ruin or even homelessness, per Charles Schwab

Uncle Sam’s checkbook is finite, and whatever relief the government can distribute should go directly to those who need it the most. For the same cost as Democrats’ ambitious $1.6 trillion plan, the federal government can give a check of $1,000 to every adult American for 7 months (costing $2.8 trillion for the whole year, per the UBI Center)—substantial relief for working-class Americans through the most direct of policies while also providing a greater boost to the struggling economy, per Forbes. The government should give every person—no matter their educational status—an equal amount of money to relieve their financial burden, as individuals are the best deciders of what is best for them, which may include but is not limited to paying off college debt.

An executive order for college debt forgiveness may be necessary in the future, but it would certainly be the wrong way to kick off the Biden administration. The Democrats cannot afford to play Santa Claus and carry out the “Christmas list” of the upper class—namely, college debt forgiveness. Children may send Santa these lists, but the adults know that the federal government isn’t Santa and can’t magically make the bills of the wealthy disappear at no cost. Rather, that bill would be unjustly footed by ordinary, working-class Americans—a slap in the face to the working class from the party that, from labor unions to the New Deal to minimum wage increases, has historically fought for them.

In order to move the nation forward after a calamitous 2020, Democrats must invest their platform in the problems that impact all Americans, not just the ones that voted for them, and pursue more efficient, equitable policies than college debt forgiveness to close the economic barriers that divide our nation.

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