In the escalating battle of 2020 Democratic presidential candidates to see who can offer the most free stuff, Sen. Elizabeth Warren, D-Mass., has taken the extraordinary step of calling for having the government forgive student loan debt. This pander will not only be incredibly costly, but it will be a slap in the face to those who have already struggled to pay off their student loans without government assistance.
The political logic is understandable for Warren, who has been struggling to break through in polls. Like most other candidates, Warren has promised to deliver free college. But free college doesn’t do much for millennials, who make up a sizable portion of the Democratic electorate. They are already past college age and mostly are not old enough to have kids nearing college. But what they do have is a mountain of student loan debt, so promising to cancel all of their debt would have a huge impact on their finances.
Right now, more than a third of millennials have student loan debt, and studies have shown that the debt is leading them to delay major life decisions including purchasing a house, saving for retirement, and even getting married and having kids. Total student loan debt is now at $1.6 trillion in the United States, making the money owed high than auto loans and credit card debt and trailing only mortgages in terms of the value of various forms of consumer credit. Unlike other forms of debt that are spread across the whole population, student loan debt is concentrated mostly among younger Americans.
What Warren is proposing is to offer debt cancellation of up to $50,000 to more than 42 million people, or 95% of those with debt. She says that will completely wipe out debt for 75% of borrowers with student loans.
Aside from the cost, which, like her child care proposal, she claims would be covered by her ultramillionaires tax, the plan would be tremendously unfair to those who have been struggling for years to pay off their student loans.
It’s true, some people may simply earn too little to make a dent in student loans no matter how hard they work and no matter how much they reduce their expenses. But that doesn’t tell the whole story.
There are those who may have taken higher-paying jobs they didn’t necessarily want to pay off loans. And there are those who have cut expenses to the bare bones to pay off loans while watching their friends with similar salaries eat out and travel and deprioritize paying off loans. Those who were more responsible will feel justifiably enraged at the idea that those who may have been more profligate will now get a bailout from the government.
This is the worst sort of pander from an increasingly desperate politician.
Update: This post has generated quite the angry response on Twitter. Admittedly, the volume of scatological hate tweets are making it difficult to discern intelligent counterarguments. As far as I can tell, most of the responses boil down to mocking my piece with sarcastic arguments structured as: “People have been enduring X and it’s bad, so we should oppose any policies that would prevent X in the future.” An example is: Saying student loan forgiveness would be unfair to those who struggled to pay off their loans would be like saying, we can’t cure cancer, because it would be unfair to those who already died from the disease.
Unlike those other examples, simply saying the government will cancel everybody’s loans does not solve the underlying issues associated with the rising cost of attending college in the same way that a theoretical cancer cure would actually eliminate the disease. This is only true if you believe government declaring something free is the equivalent of it having no cost.
Curing cancer would not have negative impacts on those who already suffered from cancer, whereas if the government were to take on the cost of student loans, it would be a burden that would be placed on other citizens either in the form of higher taxes or more debt. While Warren insists that her plan would be paid for by taxing ultramillionaires, she has already promised that ultramillionaires would be paying for a wide range of her policy proposals. In reality, should she be elected her agenda would not be able to be financed without higher taxes on the middle-class, as is the case in other nations with the type of social welfare state she envisions. Money is fungible, too, and a tax on ultramillionaires being used to pay for student loan cancellation is revenue that is then not available to pay for other government priorities.
Those who made decisions such as going to a less expensive school that may not have been their top choice, taking a suboptimal job, or living more frugally, will not receive the same benefits from government as those who went to the more expensive school, took the job they wanted, or lived in a more profligate manner.
Furthermore, there is no moral hazard issue involved with curing cancer. That is, paying off student loans would be another signal from the federal government that those who may be engaging in less responsible behavior will eventually be bailed out by government while those who make responsible decisions will receive no benefit. As we contemplate what to do about the long-term entitlement crisis, this sends a horrible signal — that there’s no reason to be a sucker and manage money wisely now, because at the end of the day, the government will always be there to step in.
Finally, some have argued that my post is somehow a generational middle finger from the baby boomers (who had significantly lower college costs) to millennials. Yet the early millennials are now 38 years old, and many of them fit into the category of those who worked diligently (or have been working hard) to pay off their hefty student loan debts.