New York Times columnist David Leonhardt wrote a column asserting that canceling student debt would mainly benefit wealthy students and that dealing with student debt after graduation is entirely manageable for graduates. Thus, calls for “cancel all debt” and “free college” are wrongheaded and instead debt forgiveness should only focus on low income households and financial aid should be expanded.
Leonhardt’s reasoning is nevertheless problematic. Citing research by the Urban Institute’s Sandy Baum and Victoria Lee (I critiqued Lee’s dismissal of a Massachusetts endowment tax here), he concludes that canceling student is merely a “giant welfare program” for the wealthy. This is due to the fact that families with higher income take on more student debt. Also, since most college graduates pay off their loans, debt burdens are only a serious problem for those who do not finish college with a degree.
However, this a very narrow way of viewing a student debt jubilee. Painting student debt cancelation as a giveaway to the rich undermines who would truly benefit from debt free college. When college dropouts are asked why they left about seventy percent of African American dropouts as well as close to half of white dropouts cite student debt as the main factor. Ending this financial barrier that prevents those with low incomes, and disproportionally African Americans from obtaining a degree would certainly expand access to those who did not have it before. And certainly, debt free college should apply to everyone regardless of income. It would be ridiculous for higher income students to be asked to pay upfront for attendance at public primary and secondary schools. The same should be applied to public higher education.
On the back end, student debt, though “manageable” on the individual level for graduates, takes a terrible toll on an individual’s net worth and the economy as a whole. It is estimated that for each dollar of student debt there is an associated four dollars of wealth loss. On a national level we are talking about trillions of dollars of wealth loss. An analysis on the macroeconomic effects of a student debt cancellation projects an increase of Real GDP by $86 billion to $108 billion per year, an increase of 1.2 million to 1.5 million jobs per year, and a fall in the unemployment rate.
If Leonhardt and other critics were truly concerned about the rich benefitting from debt free college then they should be arguing for progressive taxation rather than shutting out millions of current and future students from the opportunity to graduate without dealing with one of the most absurd economic activities: borrowing tens of thousands of dollars for your own education.
