The level of student debt in this country represents a massive policy error. But is forgiving up to $20,000 of student debt really the best way to help low-income Americans, or fix the nation’s education-financing problems? The Atlantic’s Jerusalem Demsas joins Derek to discuss the student loan forgiveness debate and weigh the positives and negatives of President Joe Biden’s controversial new policy.
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Derek and Jerusalem discuss student loan forgiveness from an economic-justice perspective.
Derek Thompson: Since [President] Joe Biden announced his plan to forgive up to $20,000 of student loans for tens of millions of households, I’ve been pretty overwhelmed by the chaos of the debate over this law. And before sitting down to do this podcast, I wanted to figure out, why is this debate in particular so overwhelming and nonsensical? And I think it’s because there isn’t just one debate happening here. There are at least five different debates about this policy that are pretending to be talking to each other. You’ve got people debating economic justice, racial injustice, politics, the consumer economy, inflation, education financing. So what I thought we would do here is rather than have a scrum where we pretend to talk about all these things at once, we break them down into their constituent categories and talk about them one by one. So let’s start first with student loan forgiveness and the case for economic justice.
Now here, I’ve heard two broad classes of arguments. On the one hand, I hear people who say, “Look, student debt is morally indecent. No other country has saddled a generation of college graduates with debt like this for committing the sin of getting a college education.” But then there’s this other group that says, “Well, debt is a contract. This was a contract that was taken on knowingly. And it happens to be held, the student debt, by Americans who overall are roughly middle class or have average to above-average incomes.” So I wonder, do you think one side has the clear advantage here?
Jerusalem Demsas: I think that both those arguments certainly are being made a lot and I think that they’re both wrong in where they’re coming from, because I don’t think it’s useful to talk about the moral valence of debt in the abstract and whether or not it’s fair. I think the question is, does this debt allow people to make their lives better or not? So I took out roughly $30,000 in student loans to go to undergrad. That’s all federal debt and my parents did not have the money to pay directly for my tuition. So I was able to go to school and then I was able to get a job that was good enough to pay down that debt. And so for me, the bet really pays off. And then there are some people for whom that doesn’t happen.
They either don’t get a job that lets them do so, maybe they didn’t finish college, and so they don’t get the benefits of an increased wage premium that comes with a college education a lot of the time. So I think the real question here is not, “Oh, does debt in the abstract, is that good or bad?” But there’s a reason we’re talking about student loan debt and we’re not talking about forgiving a bunch of people’s mortgage debt, because it’s broadly accepted within the United States that taking on mortgage debt is of course a great bet. You’re getting to leverage a ton of money that you don’t actually have in order to pay for something that you definitely need regardless. You have to have shelter. And so people don’t talk about forgiving mortgage debt in the same way. So I think the big question here is just, is this bet actually paying off for most people?
Thompson: Could someone make the argument that we already do use federal policy to preference mortgage debt? Because we have a mortgage interest deduction in the federal tax code. But on the other hand, with student debt, we don’t have similar privileges in the tax code. We don’t allow student debt to be written off in bankruptcy; that while it’s useful to build human capital and move people, hopefully, between classes, it’s not treated the same way that other debt is treated and that maybe this policy is a way to rectify that historical injustice—that finally now we are treating student debt a little bit more nicely than we treat other debt.
(Note: There are tax credits for student loan interest. Also, student debt can be discharged, though the applicant needs to make a case for it in court.)
Demsas: Yeah, I think this is one of the weird things with policy debates when people talk about balancing instead of fixing the actual problem. Yeah, student debt should be able to be discharged in bankruptcy. And we shouldn’t just try to make student debt a little bit better in some random way. You should just fix the actual problem you’ve identified, which is that if you are bankrupt, you definitionally didn’t probably get the good benefits that come with a college wage premium, that you were clearly not living the economically productive life that you were promised after you went to school. And so you should just allow people to discharge the debt during bankruptcy.
I think it’s very odd and I think this is a larger problem we have within politics, is when people feel like the actual problem is too difficult to solve, or there’s some political barrier in the way of solving that problem, they nibble around the edges in weird ways in order to attack the problem—and often it’s to satisfy some constituency or because they actually do feel bad about the problem that exists—but in doing so they end up pursuing policy aims that don’t actually address the core harm that’s being perpetrated on a population.
This excerpt was edited for clarity.
Host: Derek Thompson
Guest: Jerusalem Demsas
Producer: Devon Manze