Student Loan War Mania
The cases for and against debt forgiveness.
Reminder: Thursday Night Bulwark is on holiday this week and next. We’ll be back after Labor Day.
Today I’m going deep into the pros and cons of Biden’s student loan forgiveness program. To be honest, I can kind of see both sides. I’ll be interested to hear your thoughts in the comments.
1. Student Loan Fight
Here are some problems with forgiving student loan debt:
(A) Who is the constituency?
It isn’t people currently in college. It isn’t the parents of people who will go to college in the future. It isn’t people who have finished paying for college. Or people who have not and never will go to college.
The constituency is the narrow band of graduates who qualify for forgiveness.
(B) The market for student-loans is irrational because student loans are a one-time purchase.
If you want to reform, say, healthcare, everyone has skin in the game. Some more than others, obviously—70 year olds need healthcare more than 20 year olds. But everyone uses healthcare and they use it multiple times over the course of decades.
A student loan is a good that people encounter once.1 They encounter it at a specific stage of life, when they are in a state of economic infancy, with no real income, no real assets, and only minimal understanding of personal finance.
What’s more: The good they are purchasing is of opaque value. If you pay for a house, or a car, or insurance, or heart-bypass surgery, you know what you’re getting. But paying to go to college? To be graded by professors and then, if you pass, be handed a credential which may or may not confer value at some indefinite point in the future?
That’s roughly the equivalent of purchasing a mystery box.
And the sequencing of this purchase is kind of crazy in that it warps the incentives of the seller.
Imagine if people only bought one car, ever—that this car would last for their entire lives. And that most people made this purchase at age 13, four years before they could actually use the car. What would that do to the auto industry?
The market dynamics for one-time goods is so idiosyncratic as to be nearly irrational. In that way, the student loan business is not dissimilar from the mortuary business.
Why do caskets cost so much? Because they are one-time purchases that people make in moments of emotional duress.
(C) Forgiving student debt will not impact the cost-structure of higher-ed.
If you think of the higher-ed system as a kettle that is boiling, loan forgiveness is releasing steam in order to temporarily stop the whistle. It does nothing to turn down the heat on the burner.
(D) Forgiving student debt is expensive.
Biden’s plan is going to cost taxpayers about $360 billion. That’s real money.
(E) People are terrible.