Lessons of Biden’s Debt Jubilee

Joe Biden, reeling from consistently low poll numbers, has thrown a Hail Mary pass in the form of limited student loan relief. Like any form of debt forgiveness, it is going to have some unavoidable inequities, not least for those who never had or already paid off their student loans. Moreover, many of the beneficiaries are not particularly struggling; they’re just recent college grads. 

The most overburdened are the dropouts, the students at “for-profit” universities, and those who go to grad school. Many of these groups become debt slaves with little hope of ever paying back their loans, drowning in interest, with some workers actually retiring with student loans outstanding

Free advice to any young people reading this: Avoid student loans.

The Education Bubble

The entire student loan system is based on some dubious assumptions, the chief of which is that more education is always better. Like any investment, the return depends on the price and interest rates, as well as one’s own ability to contribute sweat equity.

Six figure indebtedness for an undergraduate degree in humanities is not economically rational. Education has intrinsic value, of course. But acquiring knowledge, cultural awareness, and refinement does not require loans or even going to college. We still have libraries, I believe.

What can come from college, particularly an expensive one, is a network of upwardly mobile people and a credential necessary to enter certain fields or to obtain training for professions like law, medicine, and the STEM fields. Even with these benefits, minimizing debt is typically rational. 

For the broader society, there are negative systemic effects from the widespread proliferation of student loans. Easily available student loans have led to massive inflation in education far exceeding what we see in consumer inflation. 

This inflation is driven by perverse incentives, not least that the universities bear almost no responsibility in cases of default. The student loan regime has created, as I argued more than 10 years ago, an education bubble. But, like most bubbles, it is sustained and expanded by government action. 

Fueled by easy money and myths about education leading to success, a huge number of colleges, administrators, and entire cities depend on this boondoggle going on indefinitely.

Bootstraps Conservatism

Conservatives are generally the hardheaded sort who pride themselves on self-sufficiency. Paying back debts is part of this value system. This is why there is a lot of grumbling about Biden’s plans among the pre-Donald Trump wing of the Republican Party. 

Part of Trump’s appeal, which many older Republicans still fail to understand, is that he was not a traditional Republican and instead supported the social safety net and middle-class entitlements, such as Social Security, Medicare, and the like. While being socially liberal and economically conservative was touted for decades as the key to expanding the party’s reach, he instead found success by being more socially conservative and economically moderate. 

This graph of 2016 voters shows that the socially conservative and economically moderate group (the upper left quadrant) is the most in play, while the socially liberal and fiscally conservative voters of Republican strategists’ dreams is tiny (the lower right quadrant). Consistent with these policies, Trump even hinted that he might provide student loan relief

The GOP needs to tread lightly here because the upper left quadrant of the political compass is a large group of voters who could lean either Democrat or Republican depending on the salient issues. 

On a policy level, there is some legitimate criticism that student debt forgiveness is a subsidy to the privileged, since a large number of people in the working class do not go to college and thus have no student loans. Others express a legitimate concern for insisting on the morality of paying one’s debts. Indeed, one should pay back non-usurious debts, since it is a promise. 

But one wonders how many of the folks complaining about the morality of student loan forgiveness obtained, directly or indirectly, PPP loans. Many well-heeled companies did. The total amount for the program of forgivable loans was more than half of all student loan indebtedness at $953 billion. There was no “means testing” for PPP; it was a straight money giveaway. Before this, Wall Street benefited handsomely from the Troubled Asset Relief Program program. 

In other words, opposition to government giveaways seems highly selective. Even without the hypocrisy, I would question the morality of prioritizing the collection of every last cent from a debtor. There are other important considerations besides paying back debts, such as showing mercy, maintaining social stability, and encouraging future productivity. This is why the Constitution provides bankruptcy protection to allow a “fresh start” through relief from ordinary debts. But since 1976, student loans could not be discharged in bankruptcy

Much of the hostility to student loan forgiveness is generational. The older Reagan Republican types are living in a different universe, one where you could still pay your way through college or make a good living with only a high school diploma (and sometimes not even that). Younger people have taken on these debts under the influence of relentless “go to college” propaganda beginning in elementary school and must seek employment in a world where more and more jobs are hindered by credentialist gatekeeping. 

Public Policy and Public Choice

As someone on the Right, I am a bit conflicted. The giveaway concerns me for reasons of expanded government spending, inequity, and moral hazard, but the long-term effects of extensive student loan debt concerns me, too. This burden leads to delayed home purchases and family formation, and deprives borrowers of other aspects of the American dream. In general, we should favor policies that relieve burdens to family formation from talented, high IQ, and productive people.

Speaking only to the question of good policy, simply making student loans dischargeable in bankruptcy after some decent interval of time would probably solve the problems the more extreme cases present, while providing disincentives from abuse through the impact of bankruptcy on one’s credit. 

But the Biden Administration decision was not guided by public policy concerns. Instead it undertook a cynical giveaway to a core Democratic constituency: young people. Democrats understand—and the GOP always forgets—that politics is about rewarding one’s friends and punishing one’s enemies.

A lot of people are suggesting this will backfire for Biden. I doubt it. Of course, as a policy it will fail. It will likely further accelerate inflation by freeing up tons of cash among people who tend to spend most of what they make. It will also increase inflation in education and overborrowing from those who conclude that more loan forgiveness is in store in the future 

But Biden’s policy has a feature that will make it a political winner: student loan forgiveness concentrates benefits and disperses costs. Economists and political scientists have long decried this feature of democratic politics under the umbrella term “public choice.” 

Public choice theory explains why policies that are collectively harmful prevail in democratic regimes when they are beneficial to an interest group. The 20 million people whose loans are fully forgiven will likely be extremely aware of and grateful for the Biden program; the larger number who will retain significant indebtedness may also conclude it’s better to stay on the team in the hope of a larger giveaway down the road. The details will be more salient to the 45 million beneficiaries compared to the broader group of taxpayers and citizens, who will be paying indirectly for the costs of this program. 

The lesson for the Right is simple. We need to absorb the facts about the 2016 election regarding the unpopularity of “social liberalism and economic conservatism.” We should be mindful of the ways middle-class strivers face headwinds from debt and other structural changes in the economy. And, rather than extolling an outdated bootstraps conservatism, we should instead explore ways to use government action to reward our core constituencies.

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About Christopher Roach

Christopher Roach is an adjunct fellow of the Center for American Greatness and an attorney in private practice based in Florida. He is a double graduate of the University of Chicago and has previously been published by The Federalist, Takimag, Chronicles, the Washington Legal Foundation, the Marine Corps Gazette, and the Orlando Sentinel. The views presented are solely his own.

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