This post originally appeared at https://www.badgerinstitute.org/the-many-ways-wisconsinites-will-pay-and-pay-for-other-peoples-student-debt/

Biden’s loan scheme doesn’t forgive debt but transfers it — and doesn’t do anything to fix the problem

“Debt relief” was how the news reports described the scheme outlined by President Biden at a Madison technical college the other day, or even “debt forgiveness,” giving a sheen of moral altitude to the president’s promises.

But when the president tells borrowers not to bother paying back what they owe, it isn’t relief in the way medicine relieves your pain — it doesn’t alter any painful underlying causes. It isn’t forgiveness in the divine sense, metaphysically washing away the stain. The stain remains in the form of blood-red ink on the federal books.

This is a transfer of debt, and if you aren’t now repaying a student loan, it’s going to be transferred onto your back.

Biden didn’t mention cost, nor did his economists, but outsiders Thursday pegged the price of this gift to 30 million borrowers at about $85 billion for the new parts of the scheme, or about $560 billion if you include previously announced plans. For scale, that’s about what the government spent on Medicaid this year.

This money isn’t imaginary. Repayment is expected by the federal government, the sum budgeted as incoming money to offset planned spending. To the extent it doesn’t show up, it can’t offset anything. The government, where spending already outran income by more than $1,064 billion in just the past six months, will add it to the $34,581 billion it already owes — that’s about $103,000 for every woman, man and babe in arms.

That will be paid, somehow and someday, much of it by the other 300 million Americans who aren’t blessed by Biden’s magnanimity. Most of them didn’t go to college, and of those who did, many didn’t borrow or didn’t borrow much. More than a third of students who earned a bachelor’s degree in 2019-20, according to the latest figures from The College Board, had no student debt. Only a quarter had more than $30,000. This thrift and prudence will be rewarded by having to pick up the burdens incurred by others.

Many of those who benefit, in the meantime, are relatively old and affluent. Biden would cancel debts for borrowers who’ve been repaying for 20 years or more — so, people at least in their 40s. According to federal numbers, it’s borrowers 35 to 49 years old who owe the most — in Wisconsin, about 39% of the $23 billion in student debt outstanding here. This fits with how much of student debt comes from professional degrees, such as those in law, medicine or dentistry: 72% of those getting such a degree owe $50,000 or more. But it means that relief is going to people who’ve had years to ramp up their careers or who are in high-earning professions.

Soon, they may see their own kids head for college, where the average all-in price has risen about 30% over the rate of inflation in just the past 20 years. Biden’s transfer of debt onto those who didn’t cause it does nothing to force changes at the institutions that did, nothing to alter the drivers of that cost increase.

Indeed, since we already know that every dollar of subsidized student lending leads to 60 cents of tuition increase — if there’s more money on the table, colleges will find a use for it — the likely result of everyone now assuming that future debt similarly will be forgiven is even less incentive for colleges to restrain prices.

And assuming, reasonably, that future debt will be forgiven puts less pressure on would-be students to pick a remunerative field. The Center for Research on the Wisconsin Economy just estimated the rate of return on a student’s investment in a degree from the University of Wisconsin-Madison and found, alarmingly, that while a degree in economics or engineering pays off handsomely, some degrees lead to work so little valued by employers that a lifetime’s incremental earnings don’t equal the investment.

“Rather than forgiving student loan debt,” the authors wrote, policymakers should grasp that the problem with student debt is that debtors chose poorly paying careers: “Students’ lack of information about the impact of major choice on lifetime earnings is sadly setting some of our graduates on a road to high debt and low earnings.”

What should we do then amid the student debt crisis?

First, grasp that it’s not a crisis. About three-fourths of borrowers owe less than $40,000. Existing income-based repayment plans allow debtors to handle this readily.

Second, don’t make everyone else pay. Biden isn’t offering any “forgiveness” on the money someone borrowed to set up a carpentry business instead of earning a gender studies degree.

Third, stop digging. That federal debt is frighteningly deep already.

Patrick McIlheran is the Director of Policy at the Badger Institute. Permission to reprint is granted as long as the author and Badger Institute are properly cited.

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