Democrats are pushing for Joe Biden to make one of his first acts as president the cancellation of trillions of dollars in student debt, a policy that would hand billions to the nation's wealthiest with little benefit to the overall economy, experts say.
In an Election Day interview, Senate minority leader Chuck Schumer (D., N.Y.) called on Biden to enact a plan, authored by himself and Sen. Elizabeth Warren (D., Mass.), to drop up to $50,000 in borrowers' student loan debt by executive order. This week, Warren and a bevy of congressional progressives have renewed the push; on Tuesday, Biden said that he'd like to see up to $10,000 forgiven but that Congress should take the lead.
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The enthusiasm among left-leaning Democrats mirrors support among the party's base, which in the Trump era has drawn in more and more college-educated Americans. Advocates also argue that debt relief, which would run to over $1 trillion, would be a major stimulus for a nation still stuck in the coronavirus recession.
But education experts told the Washington Free Beacon that forgiveness would "enrich the already privileged in this country while leaving behind, or perhaps even draining from, the neediest." New research agrees, having shown that forgiveness would bring little economic relief to anyone but the most educated.
Warren and Schumer's proposal calls on Biden to exercise his authority under the 1965 Higher Education Act and cancel up to $50,000 dollars of student-loan debt per borrower. That would trim roughly $1 trillion off of the $1.5 trillion in outstanding federally owned student debt, according to Preston Cooper, an education fellow at the right-leaning Foundation for Research on Equal Opportunity.
"I understand that it's a pandemic and there's a case for generous economic relief spending," Cooper said. "But I question whether student debt forgiveness is really the best use of the money."
That's because student-debt holders are on average well-off: More than half of debt is held by the top 40 percent of wage earners. Among Americans ages 25 to 40, half of debt is held by the top 40 percent of asset holders—meaning that the wealthiest young adults also have the most debt.
Having a degree can add over a million dollars to a person's lifetime earnings, swamping the costs of bearing debt. In other words, the Manhattan Institute's Beth Akers told the Free Beacon, debt cancellation would amount to a major transfer from the poor to the rich.
"Any way you look at it, the plight of student borrowers with college degrees is surely preferable to the plight of those scraping by on the wages paid to less educated workers," Akers said. "Yet they'll have to participate in absorbing the financial toll that comes along with canceling student debt anyway. The reality is that each dollar spent on loan relief is a dollar that is raised in taxes, from a tax base where far less than half of taxpayers have a four-year degree."
Perhaps recognizing these objections, progressives have pushed another argument for relief: It would flood the economy with much-needed stimulus dollars. Citing a team of Brandeis University economists, Schumer and Warren claimed that "canceling student loan debt would also help boost our struggling economy through a consumer-driven economic stimulus."
But other economics experts disagree. Jason Furman, who served as chairman of Barack Obama's Council of Economic Advisers, wrote that the stimulus effects of forgiveness on GDP were likely "close to zero," calling the payout "not a great idea."
An analysis released Thursday by the Committee for a Responsible Federal Budget (CRFB), a deficit watchdog, estimated that the multiplier effect of full, tax-free forgiveness would be between 0.08 and 0.23. That, CRFB senior policy director Marc Goldwein told the Free Beacon, means that "for every dollar the federal government spends and adds to our deficits, we get between somewhere less than a dime and less than a quarter of [added] economic output." By comparison, another round of $1,200 checks would net 60 cents of GDP per dollar of government spending.
There are two reasons for the weak effect of forgiveness on the economy. One is that $1.5 trillion in relief would not mean $1.5 trillion added to the economy right away but only about $90 billion, which would be in annual payments on loan debt. The money would also flow disproportionately to the well-off, who are "not the people who are most likely to spend it," Goldwein said.
That's in part because the payments would target those who have been least harmed by the recession: Unemployment levels for those with college degrees have largely rebounded to pre-crisis levels. It all raises the question: Why are Democrats so focused on a handout for the well-off?
The answer may say something about the shape of the American electorate. As controversial Marxist economist Thomas Piketty has noted, after controlling for demographic factors Democrats have been winning the college-educated vote since 1990. They won the group decisively in 2016, and in 2020, they performed even better with white college grads, Democratic political scientist David Shor recently told New York magazine.
In short, student loan forgiveness may not be good economics. But it is good politics for a party whose 2020 agenda reflected the interests of young, urban, college-educated professionals—a group only likely to grow in coalitional power in the next four years.