Why Forgiving Student Loans Is a Terrible Idea

As I start writing this, my roommate’s dog, Cooper, is on the couch next to me. One difference between Cooper and me is that Cooper does not have student loans. I do, although I intend to pay them off in full before interest ever starts up again, unless President Biden forgives them beforehand. Interest stopped accruing on federal student loans on March 13th, 2020, and the Supreme Court is set to rule on the legality of forgiving student loans in the next few months. So, I don’t feel in a hurry to pay them off. I must admit, paying no interest on them is a pretty big blessing. It would be even nicer for me if the remaining balance was just forgiven and disappeared. President Biden has said that $10,000 per borrower should be canceled. However, while it would be nice for me and other college graduates to have our loans forgiven or reduced, it is not a necessary form of aid, it would not be a wise choice for the government, and it would drive up the cost of college.

If you borrow money, you should pay it back. That is the first point. When someone borrows money to pay for college, that agreement was made with the understanding that the money would eventually be paid back by the borrower. I do not deserve to have my loans forgiven, nor do other college graduates deserve to have theirs forgiven. We borrowed that money, and we should pay it back. It is our responsibility to do so, as it is what we agreed to do.

Second, college graduates are one of the least needy segments of the population, so if the government is looking to lift up the underprivileged and disadvantaged among us, it should look to other demographics. You see, college graduates have college degrees, which are decently valuable in today’s job market. While alternatives to college are cropping up, such as Google Career Certificates, going to college is still worthwhile for those with a job that requires it. The average earnings of a worker increase the higher the level of education one gets. For those with an associate degree, average expected earnings are $836 per week, or $43,472 per year. Those with a doctoral degree have average earnings of $1,743 per week, or $90,636 per year. Obviously, these are averages, but as a whole, college graduates have a significantly better chance than other people of being able to afford repaying their debts. Only about 6.7% of the world has a college degree. That’s about 1 in every 15 people. Does the most educated 1 really need more help than the other 14?

Forgiving student loans would also be terribly expensive. It is a wealth transfer that could cost the nation about $373 billion if $10,000 per borrower were forgiven. If that amount were $50,000 per borrower, it could cost about $1 trillion. That is taking the money of people who didn’t go to college and using it to forgive the loans of people who did. To forgive student loans would also make the cost of the student loan program much higher for the federal government. In 2017, the program was not profitable, and the net cost to the government was $0.70 per every $100 borrowed to run the student loan program. In 2020, that number was $18.75 per every $100 borrowed. With borrowers granted the ability to pause paying back their loans in March 2020, the higher cost makes sense. To forgive student loans would drastically decrease revenue for the federal government and only increase net losses from the student loan program— and the country would likely keep going further into debt. Of course, I could argue that the government should get out of the business of student loans entirely.

Last, let’s try a thought experiment. If everyone who had debt on a Costco credit card was suddenly forgiven their debt because it was paid by a third party, what would be Costco's response? Well, they’d be happy to have their money back, and if they expected it to happen again, they would probably raise prices in order for that debt payment to be even larger the next time. So, if student loans are forgiven, it would be sensible for colleges and universities to continue to raise costs with the expectation that someone else (the taxpayer) will pay the costs that the students cannot. Since 1980, inflation has gone up by about 236%, but college tuition and fees have increased by 1,200% in the same timeframe. Rather than seeking to subsidize post-secondary education, perhaps the government should address the rising cost of college. Getting rid of unneeded administrative staff would be a great start.

To forgive student loans would feel nice for people like me, but it would in all likelihood create a host of unintended consequences and teach some bad lessons. Perhaps some of the nation’s student loans will be wiped out, but I am not holding my breath. Politicians don’t often deliver on campaign promises. If they did, they’d have to come up with new ones for the next election.

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Curran Martin holds a bachelor's degree in economics from the University of Wisconsin – Madison. He now works in the insurance industry and enjoys topics related to history and politics.