Student loan relief achieves worthwhile goals

Debt forgiveness will ease financial burdens for younger generations and has more economic benefits than risks

Targeted college student debt cancellation has been attacked as benefitting elites, an economic prop for higher education and, more recently, an inflationary spark. Those claims don’t hold water.

Canceling some or all college student debt for 43 million Americans, as President Biden has ordered, will ease the monthly financial burden of college-educated teachers, nurses, behavioral health specialists and other white-collar workers who have important jobs, but only so-so pay. A substantial number of people with student loans haven’t graduated from college. For those living paycheck to paycheck, reduced monthly payments for college loan repayment could mean not having to scrimp on food, childcare or other necessities.

Biden’s $10,000 loan forgiveness plan is limited to individuals earning less than $125,000 per year, so economic elites won’t benefit as they did from the Trump tax cut, which Republicans unapologetically voted for because they said it was good for the overall economy. Half of the 43 million recipients, who will receive $20,000 in loan forgiveness, are from lower-income families who paid for college with Pell Grants. Because of rising tuition and fees, Pell Grants now cover only one-third of college costs.

Fiscal policy is all about incenting certain behaviors and discouraging others. A lower tax rate on long-term capital gains, for example, encourages patient investment. Canceling college student debt is intended to lift a heavy burden off the back of younger generations of Americans who may not have enough room in their budget to invest in a first home or start a family.

Partial loan cancellation will proportionately benefit racial minorities more than others else because they have proportionately higher levels of debt, the result of less family wealth to help pay the cost of college. Lowering college debt doesn’t close the equity gap, but it should quiet those making a class-struggle argument against loan cancellation.

Texas Senator Ted Cruz expressed disdain for college student loan cancellation, claiming it will give more money to colleges and universities, including those that he says teach “toxic ideology”. This is clickbait, not an argument. The more salient issue is how public colleges and universities have been forced to raise tuition and fees in the face of flat or declining state financial support. Instead of taunts about critical race theory, political conservatives should join Democrats in pushing for greater investment in public education such as advanced technical careers, laboratories with computerized machine tools and on-the-job training opportunities that prepare workers for a future shaped by robotics and artificial intelligence.

The newest argument against college student loan forgiveness is that it will ignite inflation. This is flawed logic because in the past two years no one made monthly student loan payments. Paying slightly less per month when the current payment pause ends next January is hardly enough cash in hand for a spending binge. Evidence from the last two years indicates loan borrowers used their extra cash to pay down credit card balances and add to personal savings.

We shouldn’t let the fear of inflation become the bogeyman of college loan forgiveness. Debt cancellation that Biden ordered equates to $13 billion in aggregate annual spending. Allowing millions of borrowers to keep a total of $13 billion next year from loan forgiveness will have a negligible effect on inflation in a $16.5 trillion national economy.

Once repayments resume, “lower-income, less educated, non-white, female and middle-aged borrowers will struggle more in making minimum payments and in remaining current,” according to the New York Federal Reserve Bank in a statement issued last April. If anything, this will be deflationary.

Let’s be honest. Much of the GOP political hullabaloo over college student loan forgiveness directly relates to polling that shows college graduates increasingly support Democrats over Republicans. Instead of attacking loan forgiveness, GOP leaders, especially those with Ivy League degrees, should ask why one of their traditional constituencies is abandoning them.

Gary Conkling has been involved in Oregon politics for more than 50 years as a reporter and editor, congressional staffer and public affairs professional.

To read Mark Hester’s column on why he thinks student loan relief is misguided click here.