Student loan forgiveness is just another form of wealth redistribution

The Biden administration recently announced yet another extension of the pause on student loan payments, which costs the government $4 billion a month. Still, many Democrats are responding by increasing pressure on President Joe Biden to forgive all student loans, hoping to bolster Democratic chances in the midterm elections by sending massive checks to college graduates. Biden should continue resisting the radical calls for student loan forgiveness, an expensive policy that disproportionately benefits wealthier Americans without solving the long-term problem.

Some proponents of debt forgiveness have even begun using the Biblical language of “Jubilee” (celebrated every 50 years among the Israelites) to advocate for executive action. The Jubilee 100 is a group of “debt strikers” who pledged last year to stop paying back their federal student loans until Biden forgives all debt. (It has been easy so far, given that the Biden administration continues extending the COVID-related pause on student loan repayments for everyone.)

But the Year of Jubilee mentioned in the Old Testament does not represent a societal redistribution of wealth or forgiveness of debt as we define it today. “There is thus significant consensus among Biblical scholars that Jubilee actually entailed the completed payment of a debt, not its forgiveness,” concludes Art Lindsey at the Institute for Faith, Work, and Economics. Though the Bible also includes a parable of voluntary debt forgiveness between two people as an act of mercy, this hardly translates to mandatory government forgiveness as an act of social justice.

After all, the Bible also encourages us to care for the poor, and forgiving all student debt does the opposite. Data shows that student debt is most concentrated among wealthy, white households with significant lifetime earnings potential. The wealthiest 40 percent of households make three-quarters of student loan payments, while the lowest-income 40 percent of households only make 10 percent of payments.

Most debt is also held by people who completed a bachelor’s degree and thus have significantly higher lifetime earnings than those without a degree, and 80 percent of those with debt already say they are “doing okay financially.” Half of the MBA graduates from the Harvard Business School, for example, left school in 2020 with an average of $90,000 of debt. But their average annual compensation after graduating is $215,000. Do they really need debt forgiveness?

Developing a targeted forgiveness solution for those truly in need does not seem to be a priority for debt forgiveness proponents, who simply want the president to unilaterally erase all student debt without the approval of Congress (whether he actually has this power is legally questionable). That revenue will eventually need to come from somewhere, and the vast majority of Americans who would receive no benefit from debt forgiveness will eventually face significantly higher taxes or cuts to other government programs.

Furthermore, forgiving all student debt could cost up to $1.6 trillion, which would immediately make it the most expensive government social spending program, according to a 2021 report by Adam Looney at the Brookings Institution. Forgiving all debt would cost more than the country has spent on food stamps over the last 20 years, and “even $10,000 in debt forgiveness would involve a transfer that is about as large as the country has spent on welfare [Temporary Assistance for Needy Families] since 2000,” argues Looney.

Forgiving student debt is an expensive, inefficient way to reduce poverty and stimulate the economy. It’s also unfair to the roughly one-third of college graduates under age 40 who took on debt and worked hard to pay it off completely, let alone the majority of Americans who never attended college and would be forced to subsidize those who did.

Debt forgiveness also ignores a key question: What’s the long-term solution to college affordability? If we cancel all student debt today but make no changes to the program, the federal government will still lend more than $1 trillion over the next decade. (That number could increase drastically as new students respond to the policy by attending expensive colleges, borrowing the maximum amount, and then demanding another round of forgiveness.) Unless something else changes, colleges will continue to benefit most by raising their taxpayer-subsidized tuition.

Instead, President Biden should focus on strengthening the existing income-based repayment plans that already help low-income borrowers cap (or eliminate) their payments. He could also explore stricter caps on the amount of federal loans provided, based on the earnings potential of different universities and degrees, to ensure students are not taking on too much risk. Forgiving student debt is a political tactic to win over young voters with high lifetime earnings, but solving this problem requires a more serious policy—and an end to federal enticements to keep borrowing money.