Canceling student debt is a regressive tax

Wikimedia Commons/Andrew Magill

Cancellation of student debt is increasingly popular among young Americans, and it’s not hard to see why. Two-thirds of high school graduates are now registration To college. Student debt in the country is at a all-time high. Education is good for society, so it makes sense to subsidize it through student debt cancellation, especially when so many people are being crushed by massive loans, right? Bad.

As students, we have to face the harsh reality that while canceling student debt helps us and people like us, it’s not really what’s best for the most people in the country. In reality, canceling student debt is a regressive policy that advantages Americans already relatively well off. The truth is that a college graduate, even with student debt, is still much better off financially than someone who hasn’t attended college at all, thanks to the overwhelming income advantage associated with the possession of a diploma. It sounds good to forgo student loans, but there are many more effective ways to spend that money, such as increasing funding for early childhood education.

Going to college in the United States today is an extraordinarily profitable opportunity. The financial gap between college graduates and non-graduates is huge: A bachelor’s degree in America won, on average, 84% more per year than someone with only a high school diploma. During their career, added at a difference of $1.2 million. This disparity does not even count other benefits, such as health insurance, which are also more common for college graduates. Student debt, even in the six-figure range, is not about to negate these benefits. At a school like Emory University, it’s easy to forget how privileged we are to receive a quality education; but the truth is that even a student at the bottom of the college graduate ladder is financially better than most Americans without a degree.

Now, you might expect that while college graduates as a whole are well off, those with a lot of student debt are poorer and need more help. But that’s just not true. In fact, it’s the opposite: those with more debt also tend to have much higher incomes. Graduates above the 90th percentile hold nearly double the average debt of people below the 25th percentile. The typical person with student debt is not in trouble; they thrive.

An idea closely related to student debt forgiveness is free tuition at public colleges. The two policies seem quite similar, as they both reduce the financial burden of attending college. But there’s an important distinction: Free college would allow more low-income people to go to college who otherwise might have thought it wasn’t an option. On the other hand, canceling student debt cannot change the demographics of those who have ever attended college – it is retroactive.

The exception to this would be if we made a habit of canceling student debt. This could encourage more low-income families to send their children to college, like free tuition, since prospective students could simply take out loans and expect them to be forgiven quickly. However, the regular cancellation of student loans would cause a host of new problems. Most important of these is that colleges would have an incentive to raise prices as high as they wanted, since people would continue to enroll, using loans that the government would cover.

Now, forgiving student debt may be an inferior option to free tuition, but that doesn’t necessarily mean it’s bad. I can’t deny that some people would be genuinely helped by the cancellation of student debt. Some of the problems can even be solved when student debt forgiveness is put into practice. For example, President Joe Biden’s recent student debt cancellation measure excluded people earning over $125,000, which is definitely a step in the right direction. But that doesn’t change the fact that it still helps many people who were already rich and excludes those who need it the most because they never went to college.

The bottom line is this: the money for student debt cancellation has to come from somewhere. There’s a concept in economics called opportunity cost that says every action has a hidden cost that takes the form of whatever you could have done instead. For example, if you choose to go see a movie one afternoon, you not only pay $20 for a ticket, but you also give up doing anything else during that time, like going for a walk. In this case, by paying the student debt, we would lose the possibility of spending this money elsewhere. This money could be spent in other ways to help people more equitably, or even to specifically target low-income people. For example, the money could reduce school fees, fund primary and secondary education in poor areas, or be distributed with simple stimulus checks. Any of these would be far better than student debt forgiveness, a regressive program that disproportionately helps those who are already wealthy.

Finn Owsley (24C) is from Kenmore, Washington.


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John A. Bogar