Forget fairness: Canceling all student debt makes great economic sense for America – here’s why

student loans graduate
Countless Americans are burdened with student loan debt that can hold them back from buying homes or starting businesses.

  • Paul Constant is a writer at Civic Ventures, a cofounder of the Seattle Review of Books, and a frequent cohost of the “Pitchfork Economics” podcast with Nick Hanauer and David Goldstein.
  • In this week’s episode of Pitchfork Economics, Hanauer and Goldstein spoke with Fenaba Addo, an associate professor at University of Wisconsin Madison whose research focuses on racial disparities and student debt.
  • Addo says her research has uncovered, like many economic disparities in the US, that black student loan borrowers are disproportionately saddled with higher average loan balances as well more issues with defaults and delinquencies.
  • She says forgiving the $1.5 trillion in student loan debt would serve as a direct re-investment into the economy, as more graduates would then be able to afford cars and homes and start their own businesses.
  • Visit Business Insider’s homepage for more stories.

The word “fairness” comes up a whole lot when we talk about the incoming Biden Administration’s plans to pass some form of student loan forgiveness. Supporters argue that it isn’t fair that the current generation has to pay tens of thousands of dollars more for a decent college education than generations before, while wages have stayed largely flat and other expenses have skyrocketed. Some opponents argue that it’s not fair to forgive student loans when they have already worked hard to pay back their own loans.   

It’s easy to get caught up in the morass of fairness arguments. 

As sharing animals, humans are hard-wired to be obsessed with the concept of fairness. But ultimately, the student loan forgiveness debate is an economic issue – and it makes great economic sense to cancel student debt.

We’ll get back to that in a bit, but first let’s consider the size of the problem. In this week’s episode of “Pitchfork Economics,” Nick Hanauer and David Goldstein spoke with Fenaba Addo, an associate professor at University of Wisconsin Madison whose research focuses on racial disparities and student debt.

Addo points out that “approximately 45 million borrowers” owe more than $1.5 trillion in college loans. And while a few disingenuous pundits would like to claim that figure is largely made up of people spending above their means to attend overpriced elite institutions, the truth is that only six percent of student loan borrowers owe more than $100,000

“A lot of people with student loan debt actually are concentrated towards the lower end of the student debt distribution – so, below $20,000,” Addo said. 

Read more: This couple paid off $114,000 of debt in less than 2 years – then saved up $431,000. Here are the side hustles they started and how much money they made from each one.

Like so many economic disparities in America, Addo’s research finds that student loan debt doesn’t land evenly along racial lines.

“Black borrowers in particular have higher average loan balances,” Addo said. “They tend to accumulate more debt, and then they have higher problems with defaults and delinquencies. So we see a disproportionate number of black borrowers with student loan debt.”

So what student loan debt cancellation plans are on the table right now? Addo says several ideas are wrestling for primacy. 

“The Biden [administration] is proposing a $10,000 debt cancellation for individuals with student loans that would phase out at an annual income of $125,000,” Addo explained, adding that Biden’s team is considering only targeting forgiveness for debts incurred for those who attended public universities. 

She notes that more progressive politicians like Senators Bernie Sanders and Elizabeth Warren, are proposing the cancellation of “$50,000 across the board” per person – no matter what your income or where you went to school. All the other plans, Addo said, “kind of fall in between those.” 

Read more: Meet the people making the ‘financial independence, retire early,’ or FIRE, movement more inclusive by challenging norms around saving, debt, and living frugally

So how much of America’s roughly $1.5 trillion dollars in student debt does Addo believe should we forgive? 

“You know what they say: Go big or go home,” Addo said. “I think we need to cancel all of it. We admit that the current system isn’t working and has failed many people. As a society we need to fix something. And one of those fixes should be removing this debt.”

It should be noted that Addo’s proposal isn’t that far to the left of the policy that the average American wants. A recent Data for Progress poll found that more than half of all Americans – 51% – support a proposal to forgive $50,000 in debt for any American earning under $125,000 per year. More than two thirds of all respondents approve of a program that forgives $10,000 in debt for every year the borrower works in community or national service. College debt cancellation is broadly popular

That explains why forgiving student debt makes good political sense. And at the end of this week’s episode of “Pitchfork Economics,” you can hear a compelling case for why it makes good economic sense. 

Podcast listeners called in from all around the country to explain what they’d do if their student debt was cancelled. Bobby from North Carolina would use that extra money to help his young adult daughters, who are struggling to find work in the pandemic, pay their rent. A 40-year-old woman named Amy from Dallas can’t afford to go back to school to learn how to do the work she loves because it would endanger any hope she has of scraping together a retirement. 

An educator in a wealthy, good-paying public school district who’s paying off a master’s in teaching called in to say that if his debt was canceled he’d “be able to teach in a school district that needs really effective teachers, but unfortunately does not have the pay structures in place to pay a livable wage.” 

A listener named James from Los Angeles admitted that now that he’s in his 50s and he’s paid most of his student loans off, debt cancellation wouldn’t affect him that much. But James also identified what would’ve happened had he not had that debt on his back for so many years: It “would have improved my credit standing and my purchasing ability quite significantly, because I’ve been underemployed for a very long time.”

Read more: A couple who paid off $111,000 in debt in less than 5 years share the budgeting plan they used to stay on track

Student debt forgiveness makes great economic sense because it would function as a direct stimulus investment in the economy. 

Unlike the Trump tax cuts, which handed $1.9 trillion to the wealthiest Americans and corporations, that $1.5 trillion of forgiven debt would immediately begin circulating through the economy, helping the nation recover from the coronavirus recession. 

Unburdened by decades of debt, people would buy cars and homes. They’d spend money in their communities, creating jobs. Rather than writing checks to simply pay the exorbitant interest on a loan they incurred when they were 18 years old, they’d start businesses and take chances that would create economic opportunities for others. 

When Addo says she’s in favor of going big, she’s not just talking about the cost of forgiving debt – she’s thinking about the benefits we would all enjoy from its forgiveness.

Read more on Pitchfork Economics.

Read the original article on Business Insider