Student Loans

Don't Cancel Student Debt

Making their monthly payments is a major drag for millions in their 20s and 30s, but federal forgiveness is the stupidest way to address this problem.


For many of the 43 million Americans weighed down by student loan debt, making their monthly payments is a major drag on their lives. About a third of undergraduates going for a bachelor's degree are either dropping out or taking more than six years to graduate, which means that lots of people carrying student debt don't even have a degree. Others are finding that what they learned in college doesn't even help them get a job.

Federal student loan debt hit $1.6  trillion last year. This is a major problem for people in their 20s and 30s. But the federal government simply wiping their debt clean is just about the stupidest way to address it.  

Forgiving student loan debt altogether, as Sen. Bernie Sanders (I–Vt.) promised on his 2020 presidential campaign trail, would mean printing more than a trillion dollars, thus driving up inflation and bringing the federal government even closer to insolvency. While President Joe Biden hasn't proposed going this far, he has said he wants to forgive $10,000 per borrower. In the meantime, he's been using his executive authority to whittle away at the debt load, including a recent $85 billion expansion of loan forgiveness programs.

What Biden is doing is kind of like if you had a clogged sink that's flooding your apartment, but instead of turning off the faucet or clearing the drain, you grabbed a coffee mug and just dumped the water onto the floor. And while your house keeps flooding, you tell yourself that maybe you just need a bigger cup.

Loan forgiveness programs are incredibly unfair. One-time cancellation not only screws over taxpayers and those who've already worked for years to successfully pay off their loans, but it also leaves out the generation of college students about to graduate into thousands of dollars in debt. 

Biden has suggested expanding a program that forgives the loans of people who work in public service. While this may sound like a noble idea, the beneficiaries include some extremely high-paid professionals working at nonprofit hospitals, like cardiologists who make $400,000 a year on average. Public service workers often have the best job security, health care, and pension benefits among middle-class workers, making them strange candidates for debt forgiveness. 

Why should students worry about staggering loan balances if the government is just going to cancel the debt anyway? It only discourages them from taking a more prudent path, like attending affordable community colleges before enrolling in a four-year university or going to a trade school that arms students with practical skills that lead to high-paying, in-demand jobs. 

If colleges notice that high tuition is scaring off would-be students, they'd have to lower their prices.

The way to fix an overflowing sink is to turn off the faucet or unclog the drain—in other words, you go to the root of the problem. We shouldn't focus our efforts on the debt that results from expensive college but on the expensive college itself.

There's substantial empirical evidence showing that cheap federal loans are actually a major cause of the rise in college tuition, which has outpaced the growing cost of even medical care and housing. This theory was famously argued in a 1987 New York Times op-ed by then-Secretary of Education William Bennet, who wrote that "increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase."

When you give people more money to pay for something, prices tend to go up. And forgiving debt makes the problem worse. Students won't care as much if college administrators overcharge for their services because they'll probably never have to pay it back anyway.

There are several ways we can incentivize colleges to reduce their prices and encourage students to take educational paths that maximize a return on their investment. 

For starters, we need to reduce the size of the federal student loan program over time, so that schools can no longer take for granted that applicants will be able to pay for tuition no matter what.

The best way to forgive loan debt is through personal bankruptcy, but student loans are currently the only kind of debt that cannot be discharged this way. Bankruptcy is a system that ensures that only those in dire straits get debt forgiveness, while at the same time forcing them to bear a penalty because it makes future creditors wary of loaning to them. 

Simply forgiving federal student debt, on the other hand, means forcing taxpayers to bail people out for their bad decisions while rewarding the very institutions that have been ripping students off in the first place.

*CORRECTION: The original version of this video had a mislabeled chart: $516 million was mislabeled $5.16 million. We've corrected the mistake by blurring out the figure in the YouTube editor.

Written by Emma Camp; edited by Danielle Thompson; sound by Ian Keyser

Photo Credits: Chris Fitzgerald / Candidate Photos/Newscom/Newscom; KEVIN DIETSCH/UPI/Newscom; JOHN ANGELILLO/UPI/Newscom; CNP/AdMedia/SIPA/Newscom; Caroline Brehman/CQ Roll Call/Newscom

Music Credits: "Game Over" by 2050 via Artlist; "Dusk till Dawn" by Mintz via Artlist; "Center of Gravity" by Phutureprimitive via Artlist; "The Dutchman" by Mintz via Artlist