MILTON EZRATI is chief economist for Vested, a contributing editor at The National Interest, and author of "Thirty Tomorrows" and "Bite-Sized Investing.”
Milton Ezrati
The Inequity of Student Debt
Helping indebted students will burden many who can ill afford it
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resident joe biden’s approval ratings have sunk. Several Democratic strategists have suggested that they’ll lift if the president fulfills his campaign promise to forgive student debt or at least a part of it. Their suggestion has brought the matter to the forefront of public debate. Aside from expense issues, much of the argument has centered on questions of fairness. 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. Forgiveness would anger as many as it pleases, perhaps more. The issue also reveals how little America’s elite thinks about anyone other than their friends and neighbors. The fairness arguments center mostly on how to treat other college types, those who saved for higher education or have already paid down much of their debt. Some have said the only way to put all ex-students on an equal footing would be to add forgiveness compensation for those who paid down their debt. Counter arguments to such questions point out the expense and that 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 everyone. Although it’s hard to argue with that statement, her view typically 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. Will today’s debt forgiveness, for instance, carry a promise to forgive
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the future college debts of those in high school or in grade school today? Or will equity to these future students demand that college becomes free, along with debt forgiveness for yesterday’s students? That would save future students any need for debt forgiveness—or saving, for that matter. A full debate on equity would also need to go beyond the question of how to apportion benefits. It must consider who pays.
Economics can show that debt cancellation would be far from fair on many levels, including the fundamental inequity built into the college debt system. Because the debt is owed to 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 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 still less fortunate people to get the services they need, many of them with low incomes who, for financial reasons, never even considered college. A single mother supporting her family off a meager paycheck might prefer that Washington extend food stamp subsidies rather than give up the revenue from credentialed former college students. Consideration of fairness surely
demands that people consider these aspects of the debt forgiveness question. Concern for equity also demands consideration of who has benefited from and continues to benefit from the student debt system. These are the universities, their faculties, and their administrators—possibly the most privileged people in society. The easy terms of student lending have filled classrooms and enlarged money flows 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 health care. Today, the burden for these benefits rests on the debtor students. Forgiveness would shift that burden, mostly to taxpayers. But the fundamental fairness question about beneficiaries and those who pay would remain. Is it fair that easy borrowing for college has burdened families, young scholars, and, perhaps soon, all taxpayers to the benefit of arguably the most privileged people in society? It’s easy to feel sorry for young people struggling with their finances, especially because many were duped into taking courses of study that could never enable them to discharge the debt. But before rushing to indulge such pity at what’s effectively the taxpayer’s expense, it behooves all involved to look broadly at whether the apportionment of benefits is fair and whether it’s fair to burden others in society who may be considerably less privileged than indebted students or the universities. Questions of equity demand that the debate answer questions about the inequity of burdening so many for the sake of a relatively small and extremely privileged group.
