Destroying All The Arguments Against Cancelling Student Debt

By Nathan J. Robinson, Current Affairs

The Jain Family Institute and the Debt Collective have jointly put out an important new study¹ that explains why cancelling large amounts of student debt is a good idea, destroying many of the bad arguments commonly made for putting various limitations on debt cancellation. The study is a devastating response to those (like the editorial boards of the New York Times and Washington Post) who have been making the case that “across-the-board debt forgiveness will not help” (to quote the Times) because “across-the-board student debt cancellation, which left-wing activists and politicians demand, would amount to a regressive subsidy for many high-income university graduates” (to quote the Post). Since Democratic presidents have a regrettable tendency to take the New York Times seriously, it is crucial that the study’s findings be widely disseminated and forcibly injected into the discourse.

Why Debt Cancellation Is Necessary In The First Place

Before looking at how the Jain Institute/Debt Collective study demolishes some common terrible talking points, let us recall what the problem is in the first place. There is a large amount of outstanding student debt (nearly $2 trillion in federal loans). People took these loans voluntarily, and, presumably, they are benefitting from their education with a higher income. I recently interviewed Josh Mitchell, Wall Street Journal reporter and author of The Debt Trap: How Student Loans Became A National Catastrophe. I asked Mitchell why the word “catastrophe” was appropriate to describe the situation. Why do so many of us talk about this as a crisis in need of a major public policy intervention? Mitchell’s reply is, I believe, persuasive:

Let’s go back to the end of 2019, right before the pandemic. The economy was actually pretty solid. And even back then, more than one in five students were at least three months behind on their student loans. That is a very high default rate. If you compare that to the peak of how much mortgage debt was three months behind at the height of the housing crisis, it’s more than twice that. So just comparing this to the housing crisis, there are far more people as a percentage of overall debt that are defaulting on their loans. They can’t repay them. 

If you look at the effect that it’s having on people’s ability to buy houses, to start businesses, to save for retirement—these are things that are kind of hard to notice on a day-to-day basis—there’s a lot of research to show that student loans are really negatively impacting people’s ability to make these types of investments that over the long run will lead to wealth. 

If you look at how much debt is non-performing, there are a lot of people who are not necessarily in default on their loans. But they are not making payments that are big enough to actually cover the interest on these loans. So the balance is rising. This is kind of like being upside down on your home loan, which was a big deal during the housing crisis. So a similar thing is going on right now. So while someone may not be in default, their balance is growing and growing and growing, and it stays with them for years and years. A student loan used to be a 10-year obligation. Now, it’s a 30-year obligation in a lot of cases. So if we can call the housing crisis a crisis, I don’t see how, by any metric, you can say that student loans are not a crisis.

So: we have a class of people who have a colossal amount of debt that they will never be able to pay. The human reality behind the numbers is bleak. Student debt lingers for decades; some people with student loans are now having their Social Security checks garnished. And, as Mitchell explains, living under debt for years upon years is a horrible experience:

People who are in debt have to worry about making that next payment. It’s a source of anxiety and stress. It changes your psychology. If you don’t make your payments on time, you’re penalized harshly. Your credit scores are trashed, and that limits your options in terms of being able to rent an apartment or secure a job. The stakes are enormously high. In some places, if you default on your student loans, your license can be taken away so you can’t even do your job.