During his 2020 campaign, President Joe Biden promised that if elected, he would forgive at least some of the loan debt owed by millions of student borrowers to the federal government. Now it looks like Biden is about to try to honor that pledge. Recently, he suggested canceling $10,000 of student loan debt per borrower. While he noted that certain income restrictions would apply and those with higher incomes would not be eligible, these thresholds are relatively generous. The president can take this action with the stroke of a pen through an executive order without congressional review or approval. Although the president is proposing a $10,000 write-off of student debt, other members of his party are recommending a write-off of $50,000 per student.
To give some insight into the student debt issue, 43.2 million people currently have student loans. The aggregate debt of these loans is $1.6 trillion. If Biden chooses to cancel $10,000 in debt per student, it would cost the nation $321 billion. To put that amount into perspective, the Veterans Administration’s proposed total budget for next year is $301 billion. Although student loan forgiveness is a one-time deal and the VA budget is an annual request, the comparison gives an idea of how much the federal government would spend or forgive.
For the millions of students with outstanding student loans, Biden’s proposed action is likely good news. For the 230 million other adults in the country without such debt, the news may be greeted with less enthusiasm and perhaps frustration.
The impression for many seems to be that the government can somehow magically make student debt disappear and there are no consequences associated with it. That couldn’t be further from the truth. Like most decisions, choosing one option comes at the expense of the others.
The reality is that this debt is not going away. While the student may be relieved of this expense, the taxpayers are not. In fact, these loan write-offs are absorbed by the federal government and have consequences. They result in a larger national debt that all taxpayers will participate in paying off. Also, like other things in government, choosing to spend money on one area (or in this case canceling it) means that the funds cannot be spent on other areas. If faced with the choice of billions of dollars destined to forgive student loans rather than provide additional funds for veterans programs, low-income families or seniors, much of the public may choose these other causes. The problem is that the public is not aware of these trade-offs.
For many who had a business, home, car or other loan where forgiveness was not an option, or those who during the last recession lost their home, they can rightfully ask why these highly educated people deserve special treatment.
There is also the issue of fairness to people who worked while in college to avoid taking out loans, those parents who skimped and saved to pay for their children’s education at the expense of their retirement funds, and the many others who worked a second job or saved up on their post-college expenses to pay off their loans. More importantly, what about those people who joined the military and served our country for the specific purpose of receiving college funding? Many of these individuals have exposed themselves to substantial risk on our behalf.
What may be more irritating to those who chose not to attend college and who, in turn, did not accumulate debt, is the fact that the Association of Public Universities and Land Grants reported that those with a bachelor’s degree earn $32,000 more per year over their lifetime than those whose highest degree is a high school diploma. Thus, people who opted out of college and who might earn less over their lifetime would help pay off the debt of those who would likely earn much more.
Although many are unwilling to cancel the amount of these debts, we should consider options that might help the student remove them.
One option is to seek out the colleges and universities that helped create this crisis as part of the solution. According to US News and World Report, the average debt per student borrower has increased by 26% from 2009 to 2020. One of the main factors behind this increase in debt is that tuition and fees in colleges and universities grew at a rate well above inflation. The average annual cost of a public university in 1990 was $3,349 while the average cost of a private university was $14,616. By 2020, the cost of public university had risen to $9,349 and a private college to $32,769. Thus, during this 30-year period, tuition fees in public universities increased by 279% and 224% in private schools. By comparison, headline inflation has increased by 98% over the same 30-year period.
During this same period, we have also seen the endowments of many of these same universities and colleges, attended by indebted students, increase dramatically. In fact, over 60 universities and colleges now have over $1 billion in endowments. Only a limited number of these endowments are taxed, and this rate is modest. Asking these institutions to contribute part of their largesse to repay the loans of students who have attended these universities would seem fair.
A second option may be to offer these former students the option of repaying these loans in a different way through the public service. The fact that people under contract agree to work several hours a week in a homeless shelter, to mentor or tutor underprivileged students, to help in a food bank, to working with older people and other activities would help communities meet these critical needs. It could also be a source of pride for people who have fulfilled a commitment they made. An added benefit may be that some of these people can continue to volunteer with these programs after their debt has been fully paid.
In considering the issue of student debt, let’s remember that a college loan is something where a student has made a conscious choice, much like getting a loan for a car or a business. It’s a commitment and it’s an important life lesson about taking responsibility for your actions. What message will we send to young people and other members of our society if we allow them to free themselves from their student debt? Are we making it easier for people to meet other obligations in their lives, such as child support or paying their taxes? The point is, we should be looking at options to help pay off student loans, but outright debt cancellation shouldn’t be one of them.
Greg Fulton is the president of the Colorado Motor Carriers Association, which today represents more than 650 companies directly involved or affiliated with trucking in Colorado.