(Foundation for Economic Education) Calls are mounting among Democrats and progressives for a prospective Biden administration to make “canceling” student debt a top priority.
The loudest demands have come from progressive legislators such as Rep. Alexandria Ocasio-Cortez and Rep. Ilhan Omar. Meanwhile, prominent senators such as Elizabeth Warren and Chuck Schumer are imploring Biden to “cancel” $50,000 in student debt via executive order.
While this legally dubious use of executive authority is still a matter of debate in Democratic circles, most elected Democrats support “canceling” some student debt via legislation. For example, in May House Democrats passed the “HEROES Act,” a COVID-19 relief package that included $10,000 in taxpayer-financed student debt relief…
According to the Census Bureau, only one in three adults over age 25 have a four-year college degree. This subset of Americans has substantially higher incomes, on average, than non-college-graduates.
Using billions of federal taxpayer dollars to help this relatively better-off slice of society amounts to a redistribution of wealth from the working class to educated professionals. It would mean forcing Steve the landscaper to pay more in taxes so Jenny the marketing executive can have some of her student loans written off.
But the case against the Democratic push to “cancel” student loans extends far beyond the regressive and unfair nature of the policy itself. Progressives overlook the crucial fact that government intervention created this problem to begin with.
After all, progressives are completely correct that the cost of college has skyrocketed in recent years. According to CNBC, tuition rates are up more than 213 percent since 1988 at public colleges, adjusted for inflation. At private colleges, prices are up 129 percent over the same time period.
Why have prices increased so much? It’s simple: By doling out massive sums of loan money to basically any would-be student, the federal government drove tuition prices through the roof.
“Government subsidies, which effectively lower the prices of goods or services, inevitably increase demand,” the Mercatus Center explains. “Therefore, by subsidizing tuition through federal student aid, the government creates artificially high demand for college degrees, driving tuition prices higher and increasing the overall cost for students and taxpayers.”
Ample empirical research confirms this reality.
For instance, research published by the New York Federal Reserve found that every dollar the government gave out in subsidized loans led to a 60 cent rise in tuition rates. And a Harvard study comparing higher education programs that accepted federal aid to those that did not found that tuition prices at aid-accepting programs grew much faster.
These are just two studies of many with similar conclusions.
The takeaway is clear: By trying to make college more affordable, government intervention made the whole situation much, much worse.