Ever since the Democrats unveiled the idea at their 2019 party primary election, the public has been considering the idea of widespread student loan forgiveness. Now how President BidenJoe BidenSchumer vows to move forward with a two-pronged infrastructure plan next month. Biden Appoints Veteran Housing, Banking Authority as Acting FHFA Head Iran Claims US Lift All Oil Sanctions, But State Department Says “Nothing Has Been Agreed” MORE Turning back to debt relief, political experts have a parallel debate about whether student loan cancellation would be progressive or regressive, benefiting either the economically neediest or the already affluent. But whatever you call it, lump-sum student loan granting would overlook the bigger problem: economic vulnerability.
A new report from the Roosevelt Institute attempts to refute one of the most cited student loan waiver research papers that concludes that loan cancellation is regressive because it primarily benefits high-income professionals who have big loans to graduate. The Roosevelt Report argues that focusing on income rather than wealth leads to wrong conclusions about how advanced these policies would be.
It is true that a new doctor usually has both high income and very negative net worth. But where do they stand in the spectrum of the economically vulnerable or not? The focus on student loan debt and lack of wealth does not help to consider a person’s human capital. That’s because people with college debts have fewer assets, but a lot more potential for future income. Anyone who can earn a lot of money in their job should not be considered economically vulnerable. The method used in the Roosevelt report is similar to measuring a person’s net worth by counting the mortgage on their home as a liability without counting the value of their home that they could sell in the future for profit.
The reality is that many people with college debt, even with large sums of money, are not particularly economically vulnerable. That’s because they have skills and qualifications that result in higher income than they otherwise would have. Despite having greater wealth, someone without a college degree would typically be in a more precarious financial position due to a lack of debt.
Common sense would say that those who are more economically at risk need more help from the federal government than those who are less at risk. However, this mindset is missing from the current political debate.
Of course, not everyone falls into one of these categories. Some borrow money but don’t complete their degrees, and some borrow to pay for degrees that don’t create employment opportunities that would justify the cost. Fortunately, we have already put in place a number of programs – called income-driven repayment – to protect borrowers from having to repay unaffordable debts in these circumstances.
I am guilty of relying on the notion of regressivity as an argument against canceling student loans. When I brought it up, my goal was to make people aware that many high-earning individuals who are more economically successful would be the main beneficiaries. But I think we would all benefit if we drop the jargon and have a serious debate about who we want to be first in taxpayer funded aid. For me, it is not the doctors and lawyers who start their careers with high levels of debt, but those who have no path to economic prosperity.
Rather than trying to shore up student loan cancellation support, Democrats should spend resources on poverty reduction programs or strengthen the existing borrower safety net. Focusing on these policy reforms and initiatives, rather than canceling student loans, would do more good to those who really need the support.
Beth Akers is a fellow at the American Enterprise Institute. She is the author of Making College Pay: An Economist Explains How to Make a Smart Bet on Higher Education.
source https://collegeeducationnewsllc.com/is-student-loan-cancellation-progressive-or-regressive-it-doesnt-really-matter/
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