Student Loan Cancellation

Executive Action on Cancelling Student Debt

Is the Cancellation of Student Debt Good Public Policy?

I have not actually heard a reasonable attempt to rationalize student debt cancellation as good public policy. If you know of one, please post it in the comment section.

The pause in student debt payments during the early stages of the pandemic could be justified as fiscal stimulus (needed at the time) or as part of a broad array of policies to cushion the individual financial impacts of the pandemic. What the White House announced yesterday is different.

More than anything, debt cancellation is now a political payoff to a special interest group that supported Biden, and the Democratic Party generally, in 2020. As a political payoff, it is no worse and no better than any other political payoff to a special interest group. It is no worse than Sen. Kyrsten Sinema getting rid of the carried interest provisions in the “Inflation Reduction Act,” in return for financial support from the private equity industry. It is no worse than Sen. Joe Manchin defending the coal industry. It is no worse than many of the special tax breaks added by Republicans to the 2017 tax act.

I am not saying that all of the things mentioned above are necessarily bad public policy. Some are, some are not. What I am saying is that they are not why these things happened. They happened as a quid-pro-quo for political support.

When viewed that way, the cancellation of student debt is just the payment of a political debt. It’s not good or bad, it’s just part of the grease that makes the political system work. It is hard to get angry about it when viewed this way, unless you believe the political system can be entirely altruistic.

Does it Lower the Cost of Higher Education?

Some might counter that the cost of higher education is too high and this lowers the cost of higher education. Student debt cancellation lowers the cost of higher education in the same way that cancelling auto loan debt for cars purchased in the last 2 years lowers the cost of cars. A lucky few have more cash, but the cars still cost the same. Cancellation does nothing to make higher education less expensive going forward. By the same token, the claim that it will cause colleges to charge more is weak, since there is little reason to expect the debt cancellation to be repeated.

If you are interested in some ways to actually reduce the cost of higher education, check out the Centrist Independent Voter’s policy position on higher education.

Is the Debt Cancellation Inflationary?

The debt cancellation is a form of fiscal stimulus. Unfortunately, stimulus expenditures are the last thing we need at this time. In defense of the cancellation, it is only mildly stimulative and therefore only mildly inflationary. To understand why, one needs to reflect on the income effects of the debt cancellation. Cancelling $10,000 of debt to be paid over 10 years only increases disposable income by about $1,000 each year. Theoretically, the impact might be slightly higher since the cancellation affects future income/wealth and therefore has a small additional impact on current consumption. More importantly, if the student owes a really large amount of debt, their annual payments may not be affected at all under the income-driven repayment plans. In those cases, the cancellation of debt just reduces the size of the debt to be forgiven in 10 to 25 years, from the date they borrowed the funds, depending on which plan they are participating in. Even that effect is potentially smaller if the debt forgiveness is a taxable event. All of that being said, student debt cancellation should have a negligible impact on inflation.

Of course, in the long run, debt cancellation will increase the size of the deficit. This could be offset by higher taxes. It is unlikely that the Biden administration will propose specific tax increases to accomplish this. To do so would make it obvious that this is simply a wealth transfer from one group of people to another.

The Bottom Line

Student debt cancellation is a payoff. If it is effective at keeping the target group aligned with the Democratic Party, and if it does not alienate others in the coalition, then it is good politics for Democrats. That is a big if.

Proposed Addition to Policy Position on Higher Education

A member has suggested an addition to the Centrist Independent Voter policy position on higher education. The suggestion is to make federally financed student debt dischargable in bankruptcy. In addition, in order for students to be eligible for federally financed student loans, their educational institution must agree to reimburse the government for 1/2 of any loan balance discharged or forgiven by the federal government under the original terms of the loan.

Obviously, a great many students would be technically bankrupt on graduation, so some kind of delay on allowing the debt to be discharable in bankruptcy would be necessary. I would suggest 10 years, but that is just an arbitrary suggestion.

Other suggestions are welcome. Comment below.

Parents’ Rights in Public Schools

Frank Bruni had an interesting article in the New York Times on the fact that public schools are created, at taxpayer expense, to serve a public purpose. That purpose, according to Bruni, is “the cultivation of citizens who better appreciate our democracy and can participate in it more knowledgeably and productively.”

I happen to agree with that point of view but would modify it to include making our society more socially and economically mobil and making our economy more productive. Having added that modification, I agree with Bruni’s main point that parents don’t have a lot of rights, as parents, to control what is taught in public schools. But parents are also voters, and, if they are angry, highly motivated voters, who do have the right, as voters, to control what is taught in public schools. They also, as Bruni points out, have the right to put their kids in private schools or to home school them. If enough people choose private schools or home schooling, public support for public education will evaporate, the public schools will deteriorate, and even more people will leave the public school system.

From a pragmatic point of view, parents collectively have some power to decide what will be taught in public schools, if we want a broadly funded public school system.

What this means is that compromise is necessary.

The Centrist Independent Voter suggests, in the public policy discussion on K-12 educational content, that the civics and U.S. history curriculum ought to be such that a super majority of Americans (this includes parents) would agree that it is reasonable. I think that it is probably safe to say that this same rule should apply to sex education in K-12. As I have said, in an earlier blog post, I think this can be accomplished for civics and U.S. history. I am less confident that we can reach a super majority acceptable point of view on sex education, but that is what we need to be striving for.

Bruni is right. The purpose of public schools is “the cultivation of citizens who better appreciate our democracy and can participate in it more knowledgeably and productively.” However, it is, ultimately, the voting public, which includes many highly motivated parents, that gets to decide how that democracy should be described. We also need to remember that students cannot be cultivated by the public schools if they are not in the public schools, or if the public schools cannot function for lack of funding.

At the risk of repeating myself, compromise is necessary.

Legacy Admissions

Cambridge University

If you have read the Centrist Independent Voter policy position on higher education, you know that CIVPAC recommends ending legacy admissions. The method for accomplishing this would be to deny federal assistance to colleges and universities that practice legacy admissions. Since almost all colleges and universities benefit from one kind of federal assistance or another, this should end legacy admissions in the U.S.

You would have easily been able to predict this policy position, if you had read the Centrist Independent Voter philosophy section on fairness and equity. Legacy admissions at selective colleges and universities are an egregious affront to the notion of equality of opportunity and a barrier to social mobility.

The Atlantic has an excellent article on the question of legacy admissions this month. It points out the irony that England, a hereditary monarchy with an aristocratic social structure rejects legacy admissions at Oxford and Cambridge.

The article points out that legislation has again been introduced to accomplish eliminating legacy admissions at American colleges and universities. I heartily recommend letting your congressional representatives know that you endorse this legislation.

The article also notes that there is a pledge being circulated among the alumni of selective colleges and universities that commits the signers to not donate again until their institution abandons legacy admissions. Please seek it out and sign up.