#CancelStudentDebt, Debated

Robert Brooks Contributor
#CancelStudentDebt, Debated
Read Time: approx. 4:02

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Top Story: Last Thursday, Senator Elizabeth Warren (D-MA) tweeted: Joe Biden “can cancel billions of dollars in student loan debt, giving tens of millions of Americans an immediate financial boost and helping to close the racial wealth gap. This is the single most effective executive action available for a massive economic stimulus.” In separate remarks, Senate minority leader Chuck Schumer said he has “a proposal with Elizabeth Warren that the first $50,000 of debt be vanquished,” saying he “believe[s] that Joe Biden can do that with the pen as opposed to legislation.” Since then, the hashtag #CancelStudentDebt has started trending on Twitter. Here’s what both sides are saying about the proposition of canceling student debt:

On the LeftIn an opinion piece for The Week, Matthew Walther writes: “Canceling outstanding federal student debt up to $50,000 unilaterally via executive order is exactly the kind of bold step that most of his left-wing critics had suggested President-elect Joe Biden would be reluctant to undertake.” Therefore, “Credit where credit is due.” Walther adds: “But it should be expanded into a debt jubilee that would cancel all obligations up to the same five-figure sum proposed by Schumer: credit cards, auto loans, remaining mortgage balances, and, especially, medical debts, which should be discharged without any limit.” Acknowledging broad-based debt cancellation is aggressive Walther says: “It would of course be foolish to declare such a jubilee if no attempt were made to eliminate the conditions that will give rise to the endemic levels of indebtedness. We should ban so-called ‘payday’ lending immediately, along with fees for overdrawn checking accounts. We should also establish a postal banking system, one that gives every American adult access to a small interest-free line of credit, the ability to cash, deposit, and write checks, a secure card for payments, and a ready means of receiving federal tax refunds.” To that end, “Tackling the Causes of Student Debt” is something more moderate voices on the left recommend. Kevin Carey of the New York Times asks: “What happens if we forgive student loans without changing the system that produced them in the first place?” To summarize, Carey says, not much or, “if nothing else changed, the day after any kind of mass loan forgiveness went into effect, the tide of debt would begin rising again.” In conclusion, Democrats and left-leaning voices generally tend to agree with some notion of Cancelling Student Debt, however, there is disagreement on what version of that slogan makes the most sense.

On the RightIn an opinion piece for the National Review, Robert Verbruggen says: “Forgiving Student Debt Is (Still) a Dumb Idea.” Verbruggen says: “the student-debt ‘crisis’ is nowhere near as bad as some like to pretend: Most borrowers pay a small share of their income toward their loans, and borrowers who get into trouble can already have their loans delayed or forgiven through various programs. The folks this system neglects are not people with huge debt burdens — who tend to make high incomes and are exceedingly well-covered by existing forgiveness programs anyway — but those with smaller debts, particularly those who didn’t finish college.” Verbruggen argues that “Forgiving debt for everyone is a poorly targeted policy no matter how you look at it. It helps the wealthy more than the poor, it’s not fair to people who paid off their debts early, and it’s not a good way to stimulate the economy during COVID. (As the center-left economist Jason Furman points out, the forgiven debt would be taxed, which would cut into any immediate economic effect.)” Verbruggen says “There’s also the legal question of whether the executive branch can get away with this. The law does give the executive an astonishingly broad power to ‘compromise, waive, or release’ student loans… However, it would be a blatant abuse of the power the executive has been granted.” In conclusion, Verbruggen says: “The economy is in poor shape right now, with lesser-educated Americans having a particularly rough time. Shoveling tons of taxpayer money toward the college-educated would produce a major backlash.”

Flag ThisMike Riggs of Reason provides a Libertarian take saying “Legally, Biden might be able to do it. Fiscally, he shouldn’t.” Riggs says: “The most libertarian policy preference in my view is two-pronged: get the federal government out of the lending and guaranteeing game, and make student loan debt reasonably dischargeable in bankruptcy. These two policies would realign the incentives of colleges, lenders, and students to bring down prices and saddle fewer potential students with loans they are unlikely to repay.” Pointing to education researcher Susan Dynarski, Riggs says another “solution is to lengthen the timeframe of loan repayment. In the U.S., the standard is for borrowers to repay their loans in ten years. Other countries let students pay back their loans over a far longer horizon. In Sweden, students pay their loans back over 25 years. For a $20,000 loan with an interest rate of 4.3 percent, this longer repayment would mean a monthly payment of $100 instead of $200. Borrowers with very low earnings will struggle with even a payment of $100. Some countries, including England and Australia, therefore link payments directly to income, so that borrowers pay little to nothing during hard times.”