Student Loan Forgiveness = Redistribution from the Poor to the Rich by Dan Mitchell

 There’s a lot of speculation that we’re in the midst of a political realignment, with Democrats becoming the party of the rich and the Republicans becoming the party of the working class.

I don’t pretend to know whether this realignment is happening or what form it will take, but there is plenty of evidence that Democrats are focusing on policies that disproportionately benefit those with high incomes.

And those policies often are at the expense of ordinary people, which is an especially repugnant form of redistribution.

Their efforts to restore the state-and-local tax deduction are an obvious example, but they also favor other tax breaks that are utilized overwhelmingly by rich people.

They also favor big subsidies for higher education, which mostly benefit kids from well-to-do families (and well-paid college bureaucrats).

And now they want to provide another windfall for the college crowd.

Jonah Goldberg opines on this perverse form of redistribution in a column for the New York Post.

…a coalition of 236 progressive groups led by teachers unions called on Biden to cancel student debt on his first days in office. Biden himself has already urged Congress to cancel $10,000 as part of a pandemic relief package. Sens. Bernie Sanders and Elizabeth Warren have called for even greater debt forgiveness. Sanders’ plan would cost an estimated $1.6 trillion dollars. …Most Americans, especially most poor Americans, don’t have student debt, because most didn’t go to college in the first place. Moreover, most people who did go to college have no or very little student debt. …only 6 percent of borrowers owe more than $100,000. Virtually all of them borrowed so much because they attended graduate school. …do they deserve help more than truck drivers, mechanics or short-order cooks? One reason teachers unions — a huge source of donations and political organizing for the Democratic Party — want loan forgiveness is that teachers and administrators can boost their pay by going back to school to get advanced degrees. Other municipal and federal workers — another major constituency for Democrats — have similar rules. Using the pandemic as an excuse to reward workers who are far less likely to lose their jobs and more likely to find new employment if they do, seems awfully self-serving.

Writing last year for the Washington Examiner, Brad Polumbo argues for the principle of individual responsibility.

College is way too expensive, but nonetheless, most young people who are buried in student loans or struggling to pay off their debt only have themselves to blame. The average student is now graduating with $30,000 in debt…the median monthly payment is just $222. If you can’t afford that, as a college graduate, it’s probably your own fault. …If you chose to major in gender studies, French, or anything similarly impractical, it’s your own fault that you’re stuck with a lower starting salary and might struggle to make payments. That’s unfortunate, but it’s no justification for shirking your responsibility to pay back what you owe or asking taxpayers to bear the burden of your mistakes. …people who find themselves buried in hundreds of thousands in student loan debt have their own decisions to blame. …They chose expensive dream schools… To bail them out at taxpayer expense is to punish people who made responsible decisions and encourage recklessness from future generations. …to the millions of borrowers who’ve made terrible decisions, don’t ask for a bailout — it’s your own damn fault.

Some of you may be thinking that Polumbo’s argument made sense last year, but we’re now struggling with coronavirus-caused economic turmoil and perhaps debt forgiveness would help the economy.

But that’s not the case according to the number crunchers at the Committee for a Responsible Federal Budget. They show that loan forgiveness isn’t “stimulus” even if one uses discredited Keynesian analysis.

…loan forgiveness…is the not the equivalent of sending $1.5 trillion of cash to households. …because borrowers often pay back their loans over 10, 15, or even 30 years, debt cancellation will increase their available cash by only a fraction of the total loan forgiveness. …Not only would loan cancellation provide relatively little spendable cash to households, but the cash it does offer would be poorly targeted from a stimulus perspective. …The majority of those most affected by the current economic crisis likely have little or no student debt. Over 70 percent of current unemployed workers do not have a bachelor’s degree, including 43 percent who did not attend college at all. …Indeed, about two-fifths of all student debt is held by households with graduate degrees. 

So if loan forgiveness isn’t the answer, are there any desirable policies?

Mike Riggs, writing for Reason, explains we need less government rather than more government.

…subsidies have…driven up the cost of education at a rate multiple times higher than inflation. …The most libertarian policy preference in my view is two-pronged: get the federal government out of the lending and guaranteeing game, and make student loan debt reasonably dischargeable in bankruptcy. These two policies would realign the incentives of colleges, lenders, and students to bring down prices and saddle fewer potential students with loans they are unlikely to repay.

Amen.

I don’t like loan forgiveness, but I do sympathize with many indebted students because when Uncle Sam started dispensing grants and loans, colleges and universities responded with dramatic tuition increases and then used the money to create fat, waste, and inefficiency.

Let’s end this column with some satire.

First, the geniuses at Babylon Bee produced this gem, which could be based on Jonah Goldberg’s column.

One local plumbing contractor, Sam Caughorn, is really looking forward to paying the tab on his neighbor’s $89,000 gender studies degree. …According to studies, there are millions of white girls working at coffee shops across the country while struggling under the crushing student debt they acquired by irresponsibly obtaining college degrees that gave them no marketable job skills. Benevolent politicians have proposed transferring all the wealth from trade workers and minority business owners to help indebted white girls with their student loans so they can still afford their daily latte and cat food expenses. Local gender studies major Amber White is looking forward to having all her debt forgiven, thanks in part to the contributions of plumbers like Sam Caughorn. …According to sources, Sam Caughorn owns a successful business he started right after high school. He also has 5 kids, a nice house, and serves as a deacon at his church. “I guess I can spare some change for poor disadvantaged girls like Amber,” he said. 

Second, here’s a cartoon that could be based on the column I cited from Brad Polumbo.

P.S. The way federal intervention has screwed up higher education is very similar to the way federal intervention has also made the health sector expensive and inefficient.