Don’t Forgive Student Debt

There are far better ways to help the needy

President Biden is facing pressure from some Democratic lawmakers to use executive action to forgive $50,000 of student debt for each federal borrower. After all, roughly 42 million Americans have student loans amounting to a staggering $1.5 trillion dollars—it’s a larger share of household debt than credit cards.

Such debt relief would help underprivileged minorities, says Senate Majority Leader Chuck Schumer (D-NY). “During a time of historic and overlapping crises, which are disproportionately impacting communities of color, we must do everything in our power to deliver real relief to the American people, lift up our struggling economy, and close the racial wealth gap,” he stated in support of the cancellation, which would cost the government around $1 trillion.

But this argument gets it exactly backward. Large-scale student-debt cancellation would disproportionately benefit the wealthy and make an imperceptible difference on the racial wealth gap—or even make it worse.

Although more people are going to college, they are still on average better off than the non-college educated. In 2019, Adam Looney of the Brookings Institution found that presidential candidate Elizabeth Warren’s proposal to forgive up to $50,000 of debt for households who earn less than a quarter-million dollars a year would be regressive, with the bottom 60% of households receiving only 34% of the benefit.

What of Schumer’s claim that it would stimulate the economy?

Good stimulus measures immediately put extra cash in people’s hands. Forgiving student debt wouldn’t achieve this. The Trump administration already suspended payments during the pandemic, and Jason Furman, former chairman of President Obama’s Council of Economic Advisers, estimates that debt forgiveness “likely has a multiplier close to zero.”

What about the racial wealth gap? Many advocates of student-debt forgiveness point to uneven rates of borrowing between young black and white adults, with the former often taking more debt than the latter.

The Duke University economist William A. Darity Jr., a supporter of student-debt forgiveness, examined this question in a 2019 paper that included analyses of the proposal by Warren and another by Bernie Sanders, who wanted to eliminate all student debt. “On the face of it, this would be a universal program that would disproportionately benefit black students because they hold a larger average amount of debt,” Darity wrote. But we also have to weigh this fact against the “enrollment rates for each group, because those who do not enroll in college or university do not acquire student loan debt.” Once you take this into account, by simply wiping out student debt, the “effect on the mean gap” between black and white wealth would be “imperceptible.”

A 2015 analysis by the think tank Demos was even more pessimistic about the impact of untargeted debt forgiveness. “While eliminating student debt for all households regardless of income increases median net worth for young white and Black households, white families see a greater benefit likely due to a higher likelihood of completing college and graduate degree programs,” it said. “Policies which eliminate all student debt for young households would expand the divide between median Black and white wealth by an additional 9%.”

So why are leading Democrats entranced by the proposal?


One way to look at politics is through the lens of class interests. The Democratic Party is increasingly the party of college graduates. In states such as Georgia, well-educated suburban whites formed the backbone of swing voters whom the party has relied on to make gains. A student-debt bailout is essentially representing their class interests, even if it’s far from an ideal policy to help the underprivileged.

None of this is to argue that we should do nothing about student debt. It is a growing problem worth addressing, and there are proposals on the left and right worth considering, ranging from lowering interest rates to holding colleges themselves accountable for the amount of debt their students accrue.

For his part, Biden has asked Congress to send him a bill to forgive $10,000 of student debt per borrower. While simply writing off a $50,000 debt would be a giveaway to an awful lot of well-paid doctors and lawyers, forgiving up to $10,000 of debt could be welcome relief for students who attended college but dropped out—the average person in this category has less than $10,000 of debt without getting the earning benefits of a college degree.

But if we really want to achieve the goals Schumer espouses, we should talk about aiding the least among us. As Matt Bruenig of the People’s Policy Project has shown, poverty in America is heavily concentrated among the children, elderly and disabled. These people would not directly benefit from a student-debt bailout—but there is a promising proposal that could do a lot to help them.

The Utah Republican, Senator Mitt Romney, is proposing the Family Security Act, to create a monthly cash benefit for families, with $350 per child up to age 5, and $250 for each child between ages 6 and 17. The Niskanen Center estimates that Romney’s legislation would cut child poverty by around a third, which would not only immediately benefit poor families but would have cascading effects on the prospects of their children. It would also please fiscal conservatives because Romney’s proposal is deficit-neutral, consolidating federal programs while ending the State and Local Tax deduction, which is a regressive deduction.

We live in a rich country, but one with a substantial number of people who aren’t sharing in that wealth. We could choose, like Schumer, to spend $1 trillion that would end up benefiting many who are already financially stable, healthy and upwardly mobile. Or we could focus our resources on those who are not sharing in the great promise of America. The choice is obvious.

Zaid Jilani is a journalist based in Arlington, Virginia. He has worked for University of California Berkeleys Greater Good Science Center, The Intercept, and the Center for American Progress.