Student loan forgiveness would take from 'working poor' give to 'bookish rich'May 23, 2022
This opinion piece was first published by The Columbus Dispatch.
The Biden administration’s anticipated student loan forgiveness policy will play a “reverse Robin Hood” role designed to take from the working poor and give to the more bookish rich.
Such misguided wealth transfers are always riddled with dangerous unintended consequences.
President Joe Biden’s plan is no exception, but it does offer Ohio policymakers an opportunity to pursue better solutions to a persistent problem.
Risky behavior would be rewarded
Rightly pilloried as a bailout for rich kids, forgiving federal student loan debt rewards the risky behavior of those who promised to repay loans after going to college by taxing workers who have either been repaying college debts for years or never borrowed money for school in the first place.
Biden’s proposal tries to make an unfair idea sound fairer by only forgiving federal loans for borrowers who made less than $150,000 last year. But it still sends all the wrong signals to working taxpayers, colleges, and students.
Student loan forgiveness can only come at working taxpayer expense. And the president’s plan tells workers that their current and future labors are less valuable than bailing out college graduates. The insult only gets worse from there.
Sends the wrong message to students
The Biden administration’s proposal tells future college students that they, too, may borrow money that they may never have to pay back. Such a message encourages imprudent borrowing and reinforces the mistaken assumption that one may borrow with little concern for the effort needed to repay.
Once again, big government prefers market manipulation to market improvement. In real markets, loans are based on the borrower’s perceived ability to repay. Interest rates rise and lending recedes for riskier borrowers that seem likelier to default.
Everyone applying for a mortgage or car loan learns this. Applied to student loans, market lenders would adjust loan terms based upon the likelihood that the borrowing graduate will repay the debt — some degrees make that repayment easy, some do not.
The government-manipulated student loan market eschews such distinctions. It offers cheap pots of other taxpayers’ money to all comers, regardless of the borrower’s course of study or the odds that they will afford the principal plus interest. It suppresses the real market forces that would ordinarily encourage borrowers to pursue skill sets and degrees that will help them afford their student loans.
Would not address college cost
Forgiving loans without adjusting underlying systemic issues ensures the problem —unaffordable higher education — never gets fixed. Students and their parents will be more willing to agree to pay whatever colleges ask today in the good-faith expectation that Uncle Sam will pay their tuition bill tomorrow. And that all-important market signal —price — will be muted.
But Washington’s debt-forgiveness plan is so bad that it provides Ohio an opportunity. Instead of another “reverse Robin Hood” wealth transfer, Ohio policymakers should start fixing the state’s broken higher education funding schemes and set an example for Washington.
Lawmakers should begin by making the market for education spending function more like a real market. State funding for higher education should be based on real market metrics such as graduates’ loan repayment rates, debt-to-earnings ratios, degree completion rates, and post-graduation employment figures.
Colleges and universities should have to demonstrate their graduates — not other working taxpayers — will have the financial capacity to repay the cost of their education to receive state funds.
Ohio should send the right signals to its workers, schools, and students, not wait for another federal bailout that creates more problems than it solves.
Logan Kolas is an economic policy analyst with The Buckeye Institute’s Economic Research Center and author of “Policy Solutions for More Innovation: Modernizing Ohio’s Policies to Seize New Economic Opportunities.”