Ethics of forgiving college debt

Now that Joe Biden is the president elect, a number of politicians are demanding large-scale forgiveness of college debt as one of Biden’s first initiatives. Also see here and here. There are massive ethical problems with a one-time debt forgiveness and I am stunned that senators and members of congress are so fervently pushing this. I have previously written about college debt forgiveness here and here.

Only 36% of Americans between the ages of 25 and 44 have a Bachelor’s degree. Why should all Americans be expected to shoulder the costs of forgiving debts for the college graduates? After all, college graduates earn considerably higher incomes than those who don’t attend college. Even more striking, 56% of all college debt is owed by households in which at least one person holds a graduate degree. Relatively indiscriminate college debt forgiveness results in less-educated people bearing the burdens while graduates enjoy the economic and other benefits of higher education. A Biden administration that supports this sort of wealth transfer will serve to reinforce the suspicions of the white working class that the Democratic party will sell them out to support the ‘liberal elite,’ which is essentially synonymous with the highly-educated professional class.

The second major problem with a one-time debt forgiveness is that this type of program is deeply unfair to college students who have already sacrificed to pay down their debts and to those who have not yet attended college. Imagine how an incoming college freshman will feel to learn that those who just graduated have gotten their debts paid off by Uncle Sam but that incoming freshmen will be expected to pay off their debts from the next four years. And what about the 30-year-old who has delayed buying a home and saving for retirement so that she could more rapidly pay off her college debts? Why should she end up poorer than someone who has made the minimum payments on college loans and has bought a home? There is simply a cruel and arbitrary set of outcomes from a one-time government payoff of college debt.

The third big problem with one-time educational debt forgiveness is that it does not address the real underlying problems of (1) out-of-control growth in the costs of higher education and (2) colleges and universities that offer degree programs that they know won’t lead to post-graduate income that can justify the costs. If anything, the idea that the government might, at some future date, forgive college debt again, will tend to encourage students to take on more debt. If we, as a society, are even considering writing off billions or even trillions of dollars in college debt, surely the institutional beneficiaries (the colleges themselves) of this government handout should also sacrifice in some way.

A standard argument for college debt forgiveness is that the millions of households relieved of this economic burden will spend more and thereby stimulate the economy. This is, however, not a strong argument specifically in support of college debt relief. Government handouts create the stimulus and this has nothing specifically to do with college debt. Why not, for example, use the same amount of government money to fund retirement accounts for every household in America? This has the benefits of being far more equitable and also helping to address the massive shortfall in retirement savings.