On Cancelling Student Loan Debt

Bernie Sanders recently announced a campaign policy to cancel all outstanding student loan debt. I often think Sanders proposals are unimaginative and unattainable. This one is actually pretty feasible, which makes the response to it by conservatives and more moderate liberals all the more absurd.

The common ground in these flanking criticisms is “why should we be bailing out the top 40% of Americans??! Shouldn’t such largess go to the truly poor?” This argument is a logical fallacy and often used in bad faith. Many of these same critics on the right are all for larger handouts than this to a much smaller slice of the pie– their give away to the 1% in the last tax bill stands as a monument to this fact. Sanders proposal is to solve a discrete problem (the crushing debt many Americans ages 18-40 are currently facing due to nondischargeable student loan debt), not a universal solution to the wealth gap (Sanders has other less feasible solutions for that).

Let’s assume the argument is in good faith. What are the critics actually saying? Essentially, the charge is that cancelling student loan debt for families in the top 40% will be welfare for the rich. The 60th percentile American family makes a little over 65k, which is just under the median earnings of a private fleet truck driver. 70th only cranks it up to 88k– less than the average salary for a mechanical engineer. 80th percentile comes in at about 115k, the 90th checks in at approximately 160k, and the 95% at 220k. What kind of families make up the bulk of this “40%” (which, one would note, is awfully close to half the freaking country)? From a household of a factory worker who’s spouse works part-time as a nurse or dental hygienist to a family with two high-wage earning professionals (like say a lawyer and an accountant). This is a program for the working non-poor– aka, the middle class.

Are these families capable of paying for their children’s education? I don’t think anyone needs to ask this for the families in the 60th and 70th percentiles, where the average cost of a year of college for one student would be nearly half of their post-tax income. So lets look at the 90th percentile. How much do families who make 160000 a year between two full-time wage earners have left after taxes, housing, health insurance, car payments, food, and utilities? I’ll use Ohio taxes here and say Fed, State, and local comes out to $2700 a month. Let’s assume they spend another 30% of their monthly income on housing– $2700. A little more than 10% on food; $900. 20% for healthcare; another $1800. Car payment and insurance; another 10% or $900. Gas; another $300. Clothing and incidentals; another $400. That leaves about 20% or $1800 to cover toiletries, household repairs, auto maintenance, healthcare deductible, dental, vision, savings, retirement, emergency funds, and entertainment (internet, cable/streaming, vacations, movies, going out to eat, fairs/festivals/local events, etc). A family in the 90th percentile has basically no chance of paying for their children’s college without financing. This does not come out anywhere close enough to pay 20k a year per child for college (or 50k if they go out of state or private). Even a family at the 95% mark making 220k a year has to either deprive themselves of cultural experiences and entertainment or live with little to no savings or safety net. 

The majority of American households have no real chance to pay for their child’s education. Obviously, this gets worse the less you make, but the truth is it is functionally the same. Young people who pursue higher education– even community colleges and trade schools– are being saddled with huge amounts of non-dischargeable student loan debt.

The next argument is that this is unfair to the people who chose “responsible degrees” (i.e. two to four-year degrees that lock students into a career track like nursing or teaching that can be completed cheaply at local branch campuses) and paid off their loans. Two things are going on here. The first is the attempt to slander people with student debt for getting useless degrees. The truth is, most people saddled with huge amounts of debt got very practical degrees (usually graduate degrees) in things that play active and positive roles in our economy and society like being a lawyer, an accountant, or professor of history. When someone tells you that these people should have chosen more practical careers what they are really saying is that only the rich should pursue such careers. It is inherently an argument against merit. “Only wealthy people should have the freedom to become lawyers” is a pretty stupid way to run a democracy.

The second aspect to the “it is unfair to people who paid off their debt” argument is that they are not a party to the problem. If you were able to pay off the debt you took on in short order since the crisis really emerged in the last 20 years, it was clearly not unmanageable. Perhaps you were super diligent. Kudos. More likely, you happened to pursue a lower cost career, were fortunate enough to land highly lucrative work, were in the military (or some other program that paid for school) and/or had the ability to live at home or with friends at a low cost (but still safe and close to where you work). Good for you. You are moving forward. The problem is that millions of Americans are not because the Boomers and Gen X’ers who climbed the higher education ladder that their parents and grandparents built for them pulled it up behind them.

The corollary to this argument is that providing student loan relief is manifestly unfair to people who did not and do not want to pursue higher education. Those fancy pants college kids should have done something “smart” like becoming a plumber or electrician. Again, that is absurd. Traditionally (i.e. before the 1990s), the United States has highly subsidized higher education because it is a public good. Research improves our lives in a variety of ways– from medical devices that extend our lives to psychological work that helps us live happier, more well-adjusted lives. Educated workers are more competitive in the global economy. Oh, and a democracy requires a large base of generally informed voters in order to function. Not to mention what a silly economic argument the “shoulda pursued a trade” narrative is. What do you think happens to your trade wages when there are suddenly millions of additional plumbers or electricians available to work? Wages will either drop or your level of full employment will.

Beyond the specious nature of these bad faith arguments against student loan relief, there are smart economic and social reasons to cancel student loan debt. Unlike the super rich who put their money into speculative investments that are only concerned with returns, middle-class Americans that a policy like this would reach would pour their money back into the economy. They’d buy bigger houses. They’d spend more on entertainment. They’d buy more clothes, electronics, cars, and other consumer goods. Buying more means more jobs for the people who build them, transport them, store them, sell them, and finance them. Heck, they’d pay more taxes. It would allow young Americans who go to college to stop putting off getting married and having families (meaning rising birth rates). It would allow talented individuals to pursue less lucrative but more socially impactful careers, like in teaching or social work. Instead, we push people out of those careers and direct all of this money to financial institutions that have taken almost no risk yet reap all the rewards.

I’d present this argument differently. This is not about bailing out young people who took on too much debt because of predatory lending or undue pressure to attend college. Instead, I’d argue that for two decades now, the wealthiest Baby Boomers and Gen X’ers have been borrowing from the college fund of Millenials and Generation Z to balance their state budgets (because they refuse to pay taxes). And now the bill has come due.

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