While student debt is at an all-time high of almost $1.8 trillion dollars, almost no student in American has made a payment in over two years. Trump’s emergency COVID rules didn’t just cut the interest rate to 0%; it gave borrowers the option to stop payments altogether. Almost 99% took the deal – and thanks to swift inflation, the debt burden is melting as we speak. The relief is supposed to expire on August 31, but since it’s already been extended six times, it could easily go on for another year or two. Still, many of Biden’s supporters are pressuring him to make this hiatus permanent by officially forgiving student debt. Maybe just some of the debt. Maybe all $1.8 trillion.
And here I was, diligently paying off my student loans all throughout the pandemic. No incentive to pay off debt. No incentive to save money. Really just makes me want to watch everything burn down.
I laughed really hard at the WIN reference, should have stuck with your first instinct!
I think the biggest thing missing from this analysis is that the price of college would go vertical if the moral hazard of taking on the debt was removed. It wouldn’t be long before Harvard MBAs cost $500k per year...
In defense of the useless theory that we engineers have to endure, it does serve the purpose of weeding out people who really don’t have the chops to be designing bridges/airplanes/refineries, etc.
"...almost no student in America has made a payment in over two years." This isn't true. A sizable minority of people have private student loans, which did not go on hold.
This pause makes me so angry. Cancellation will be a hard pill to swallow. We have been responsible and lived below our means to pay off our debt as much as we can. We bought a house in 2015 when our student loan balance was higher than our combined income. Today after paying a lot off and climbing the ladder in both of our careers it’s at roughly 15% of our household income so we can vision the end. I know the bootstraps saying is mocked by my generation, but we certainly did not luck into our quality (but not 1% level) jobs and the climb wasn’t due to favoritism. There may be executives that make more than us that didn’t deserve those positions but being envious serves no purpose and we remind ourselves we can only control our own paths.
Anyways, we refinanced before the pause to sofi and then again later to elfi for better rates. Our loans are private so we are not eligible to pause those loans. If there is a broad cancellation, the people with private loans are completely SOL and at no fault of their own. If there is a cancellation after I pay mine off I’ll be pissed, if there is a cancellation and I’m still paying them off I wouldn’t be able to look away from that level of envy because Ill see it as them mooching off me specifically.
My prediction is a $10,000 cancellation but only for people making less than ~$80,000 - $90,000. Which is the opposite of what we should do, that would encourage more BS (I don’t mean bachelors in science) majors and discourage more STEM. But we shall see what happens in August. I really hope it’s flat out resumed, the benefit of pausing for 2+ years is already immense, but I don’t trust this administration so I don’t see that happening.
I make the case that cancelling student loan debt, from a forward looking standpoint, makes a lot of sense if college curriculums were rebuilt to more purposefully prepare students for specific jobs/careers. I recall from my days in college a nursing student telling me about filling up her required language slots with some film studies class (and how it was an "easy A"). For careers that benefit from specialized training before day 1 on the job, college coursework should involve only this training and no other accessories/electives. Cost of college would drop significantly (less classes, less salaries). There is far too much bloat and grift in the existing college system for foregiveness to make sense. This must be fixed first.
Hi Bryan in regard to "The most straightforward effect of free college would be a massive increase in college attendance and college completion.". The Labour government in New Zealand made the first year of University free. The immediate result was actually fewer enrollments. I'm not sure if there are any similiar occurrences anywhere else in the world, but I don't think your prediction is as straight forward as you think it is.
I have different bones to pick with such a subsidy - namely that it helps the already relatively well off vs. supporting those who need more help - whether 2 year degrees, or other (as well as causing further price inflation for the underlying good).
However, I find your statement that the supply of good jobs will not increase to be pessimistic. It seems like a better trained workforce should, over time, enable a greater number of interesting and knowledge-requiring jobs. It seems like there must be data to show that as we have greater number of college degrees, we have a greater number of knowledge jobs. Perhaps if you restricted to just engineering jobs (so it was fairly clear the degree enabled the work) you could see this trend over the past decades. You could then separately argue whether all degrees are created equal and have similar value. Perhaps society should subsidize the degrees that do expand the pie of possible economic growth vs. those that don't. But again, that is a different argument and goal than the one being discussed broadly in the public.
FWIW, I'm a high school dropout, who has homeschooled his children to quite successful outcomes, hates credentialing, yet also have a BS/MS in engineering, and an MBA. Each of those degrees imparted knowledge that helped me in my career. And I paid off a ton of student and private debt.
A final moral aside - note even if there were a legal change in my requirement to pay off debt back in the day, I would have personally paid it regardless, because a debt is an ethical obligation unless one is actually bankrupt, at which point we have moral agreements in society to enable setting debts aside. There's another essay for you to write in here about why we have chosen to exclude educational debt from this moral agreement we have in our society around bankruptcy... which is probably more about legislative and regulatory capture than anything.
"On reflection, total student debt forgiveness is almost the same as “free college for all."
It is nothing like that. It is basically:
a) A tremendous injustice with the people that did pay for their college. Or their parents did (maybe even, although this is totally irrelevant to the point, with great sacrifices). Or worked their assess off while studying.
b) A (another) wasteful silencing of the price signal. After all, if your college degree cannot produce a stream of cash-flows that allows you easily repaid your loans, the degree was not worth it to begin with
c) A regressive use of taxpayer's money: why should the taxes paid by my plumber, my car mechanic, my butcher be used to pay the loans of a fancy graduate on Japanese Philology or Politics?.
It is a total, unfair, nonsense. Another misallocation of money by the government.
I'm much more biased though I understand it's a variation of the sunk cost fallacy. What it does is punish everyone who actually worked extra or sacrificed to actually pay off their students loans such as joined the military or took a dangerous two years contract in a war zone to make enough in that time to pay off the entirety of their debt, or went to a community school over a flagship to keep debt low, etc. You are signalling to is why sacrifice as society will just punish you. Can I get my two years back I abandoned my kids so my young family would have a debt free start? How about my four years from the military? Or how about the $120K I paid off.
Hi Bryan. As usual you make an interesting and compelling argument. Just curious, and I’m sure you’ve answered this question before but I can’t remember your answer. If education is mostly signaling/pointless/costly, why do you spend so much of your time doing it? I know Mercatus is great, but why add to the problem when you could do something more productive with your time? (Not wanting to criticize—I know you do a lot of non-teaching work, and I really appreciate your unique viewpoint. Just curious.)
And you don't even address the biggest societal cost to credential inflation: fertility. If you spend 4-8 years getting a bachelor's degree and then a graduate degree those are typically key formative years where you are both not having kids and spending time with childless people (which affects calculus of conscious choice).
The 2019 TFR for women with a grade 12 education was 2.1, but for holders of bachelor's degrees it was 1.3. Adios future taxpayers!
I recall that Senator Ted Kennedy said that the literacy rate in Massachusetts was higher in 1775 than currently. That makes sense when you realize that Thomas Paine's pamphlet sold 500,000 copies within a year at a time that the total population of the 13 colonies was 2.5 million. Most people learned to read and write with only a couple years of part-time instruction in the 3-Rs. Thus, unless you're going into some profession that requires specific training, 12 years of full-time schooling does seem a massive waste of time. And that's without even looking at the college level which currently provides a majority of its students with a deferred adolescence that can actually hold back their personal finances and their pursuit of a useful career.
Regarding the college students: They should consider their alternatives: 1) instead of going to college, stay home, get a job, and invest half your earnings, or 2) go to college, after 4 years, graduate in debt, with no savings, and no work skills. And for those who chose path # 1 -- if sufficiently ambitious-- they could have obtained an on-line degree or certificate or attended night schools, and ended up with almost the same "credentials" as the college kid--plus no debt, an investment account. and work experience.
Probably for half the students, beginning work instead of college would help them long-term-- Instead of bring a pauper, in debt, with no useful skills, he or she would be debt free, with money in the bank, and with work experience! The only negative is that they would have missed out on many fun party times!
But they have that choice -- If they choose the easy path and enjoy the parties, they have no excuse to want their debt cancelled!
On a historical note--The apprentice system that educated most workers before and during the Industrial Revolution was fueled by young people who had been assigned, beginning at 12-14 years of age, to a working position where they learned on the job performing useful tasks. Those apprentices ended up being the prime movers who developed the machines and methods that increased our well-being so dramatically. Read Samuel Smiles' "Lives of the Engineers" for the story of how mostly rural farm boys, apprenticed out at an early age, were the prime movers of the modern world. With little or no schooling!
The point here is not to help students but to funnel even more billions to the college-industrial complex. Higher is a bastion of the Blue tribe. They vote Blue, they donate Blue, and they most definitely teach Blue. And they’ll just raise tuition to soak up this extra money.
See also Scott Alexander's classic, "Against Tulip Subsidies": https://slatestarcodex.com/2015/06/06/against-tulip-subsidies/
And here I was, diligently paying off my student loans all throughout the pandemic. No incentive to pay off debt. No incentive to save money. Really just makes me want to watch everything burn down.
I laughed really hard at the WIN reference, should have stuck with your first instinct!
I think the biggest thing missing from this analysis is that the price of college would go vertical if the moral hazard of taking on the debt was removed. It wouldn’t be long before Harvard MBAs cost $500k per year...
In defense of the useless theory that we engineers have to endure, it does serve the purpose of weeding out people who really don’t have the chops to be designing bridges/airplanes/refineries, etc.
"...almost no student in America has made a payment in over two years." This isn't true. A sizable minority of people have private student loans, which did not go on hold.
This pause makes me so angry. Cancellation will be a hard pill to swallow. We have been responsible and lived below our means to pay off our debt as much as we can. We bought a house in 2015 when our student loan balance was higher than our combined income. Today after paying a lot off and climbing the ladder in both of our careers it’s at roughly 15% of our household income so we can vision the end. I know the bootstraps saying is mocked by my generation, but we certainly did not luck into our quality (but not 1% level) jobs and the climb wasn’t due to favoritism. There may be executives that make more than us that didn’t deserve those positions but being envious serves no purpose and we remind ourselves we can only control our own paths.
Anyways, we refinanced before the pause to sofi and then again later to elfi for better rates. Our loans are private so we are not eligible to pause those loans. If there is a broad cancellation, the people with private loans are completely SOL and at no fault of their own. If there is a cancellation after I pay mine off I’ll be pissed, if there is a cancellation and I’m still paying them off I wouldn’t be able to look away from that level of envy because Ill see it as them mooching off me specifically.
My prediction is a $10,000 cancellation but only for people making less than ~$80,000 - $90,000. Which is the opposite of what we should do, that would encourage more BS (I don’t mean bachelors in science) majors and discourage more STEM. But we shall see what happens in August. I really hope it’s flat out resumed, the benefit of pausing for 2+ years is already immense, but I don’t trust this administration so I don’t see that happening.
I make the case that cancelling student loan debt, from a forward looking standpoint, makes a lot of sense if college curriculums were rebuilt to more purposefully prepare students for specific jobs/careers. I recall from my days in college a nursing student telling me about filling up her required language slots with some film studies class (and how it was an "easy A"). For careers that benefit from specialized training before day 1 on the job, college coursework should involve only this training and no other accessories/electives. Cost of college would drop significantly (less classes, less salaries). There is far too much bloat and grift in the existing college system for foregiveness to make sense. This must be fixed first.
This title could've been 10x better with one small change: "Forgiving Student Debt is Unforgivable"
Hi Bryan in regard to "The most straightforward effect of free college would be a massive increase in college attendance and college completion.". The Labour government in New Zealand made the first year of University free. The immediate result was actually fewer enrollments. I'm not sure if there are any similiar occurrences anywhere else in the world, but I don't think your prediction is as straight forward as you think it is.
I have different bones to pick with such a subsidy - namely that it helps the already relatively well off vs. supporting those who need more help - whether 2 year degrees, or other (as well as causing further price inflation for the underlying good).
However, I find your statement that the supply of good jobs will not increase to be pessimistic. It seems like a better trained workforce should, over time, enable a greater number of interesting and knowledge-requiring jobs. It seems like there must be data to show that as we have greater number of college degrees, we have a greater number of knowledge jobs. Perhaps if you restricted to just engineering jobs (so it was fairly clear the degree enabled the work) you could see this trend over the past decades. You could then separately argue whether all degrees are created equal and have similar value. Perhaps society should subsidize the degrees that do expand the pie of possible economic growth vs. those that don't. But again, that is a different argument and goal than the one being discussed broadly in the public.
FWIW, I'm a high school dropout, who has homeschooled his children to quite successful outcomes, hates credentialing, yet also have a BS/MS in engineering, and an MBA. Each of those degrees imparted knowledge that helped me in my career. And I paid off a ton of student and private debt.
A final moral aside - note even if there were a legal change in my requirement to pay off debt back in the day, I would have personally paid it regardless, because a debt is an ethical obligation unless one is actually bankrupt, at which point we have moral agreements in society to enable setting debts aside. There's another essay for you to write in here about why we have chosen to exclude educational debt from this moral agreement we have in our society around bankruptcy... which is probably more about legislative and regulatory capture than anything.
"On reflection, total student debt forgiveness is almost the same as “free college for all."
It is nothing like that. It is basically:
a) A tremendous injustice with the people that did pay for their college. Or their parents did (maybe even, although this is totally irrelevant to the point, with great sacrifices). Or worked their assess off while studying.
b) A (another) wasteful silencing of the price signal. After all, if your college degree cannot produce a stream of cash-flows that allows you easily repaid your loans, the degree was not worth it to begin with
c) A regressive use of taxpayer's money: why should the taxes paid by my plumber, my car mechanic, my butcher be used to pay the loans of a fancy graduate on Japanese Philology or Politics?.
It is a total, unfair, nonsense. Another misallocation of money by the government.
I'm much more biased though I understand it's a variation of the sunk cost fallacy. What it does is punish everyone who actually worked extra or sacrificed to actually pay off their students loans such as joined the military or took a dangerous two years contract in a war zone to make enough in that time to pay off the entirety of their debt, or went to a community school over a flagship to keep debt low, etc. You are signalling to is why sacrifice as society will just punish you. Can I get my two years back I abandoned my kids so my young family would have a debt free start? How about my four years from the military? Or how about the $120K I paid off.
Fully agree. While ending public funding is the better deal, massively redirecting it from 4 to 2 year programs would be great.
Hi Bryan. As usual you make an interesting and compelling argument. Just curious, and I’m sure you’ve answered this question before but I can’t remember your answer. If education is mostly signaling/pointless/costly, why do you spend so much of your time doing it? I know Mercatus is great, but why add to the problem when you could do something more productive with your time? (Not wanting to criticize—I know you do a lot of non-teaching work, and I really appreciate your unique viewpoint. Just curious.)
And you don't even address the biggest societal cost to credential inflation: fertility. If you spend 4-8 years getting a bachelor's degree and then a graduate degree those are typically key formative years where you are both not having kids and spending time with childless people (which affects calculus of conscious choice).
The 2019 TFR for women with a grade 12 education was 2.1, but for holders of bachelor's degrees it was 1.3. Adios future taxpayers!
I recall that Senator Ted Kennedy said that the literacy rate in Massachusetts was higher in 1775 than currently. That makes sense when you realize that Thomas Paine's pamphlet sold 500,000 copies within a year at a time that the total population of the 13 colonies was 2.5 million. Most people learned to read and write with only a couple years of part-time instruction in the 3-Rs. Thus, unless you're going into some profession that requires specific training, 12 years of full-time schooling does seem a massive waste of time. And that's without even looking at the college level which currently provides a majority of its students with a deferred adolescence that can actually hold back their personal finances and their pursuit of a useful career.
Regarding the college students: They should consider their alternatives: 1) instead of going to college, stay home, get a job, and invest half your earnings, or 2) go to college, after 4 years, graduate in debt, with no savings, and no work skills. And for those who chose path # 1 -- if sufficiently ambitious-- they could have obtained an on-line degree or certificate or attended night schools, and ended up with almost the same "credentials" as the college kid--plus no debt, an investment account. and work experience.
Probably for half the students, beginning work instead of college would help them long-term-- Instead of bring a pauper, in debt, with no useful skills, he or she would be debt free, with money in the bank, and with work experience! The only negative is that they would have missed out on many fun party times!
But they have that choice -- If they choose the easy path and enjoy the parties, they have no excuse to want their debt cancelled!
On a historical note--The apprentice system that educated most workers before and during the Industrial Revolution was fueled by young people who had been assigned, beginning at 12-14 years of age, to a working position where they learned on the job performing useful tasks. Those apprentices ended up being the prime movers who developed the machines and methods that increased our well-being so dramatically. Read Samuel Smiles' "Lives of the Engineers" for the story of how mostly rural farm boys, apprenticed out at an early age, were the prime movers of the modern world. With little or no schooling!
The point here is not to help students but to funnel even more billions to the college-industrial complex. Higher is a bastion of the Blue tribe. They vote Blue, they donate Blue, and they most definitely teach Blue. And they’ll just raise tuition to soak up this extra money.