Student loan forgiveness has come. Eligible people can now see $10,000 of their student debt wiped away. For many liberals, this has been a cause for celebration. Should it be?
First, let me correct myself - the student debt hasn't been wiped away. It can't be wiped away. The government has already used tax dollars to spend that money. So what is really happening?
To answer that question, we can think about the relative costs and benefits that accrue to different kinds of people. Let's divide people into two categories: those who will see $10,000 in debt go away, all of whom went to college, and those who will not see $10,000 in debt go away, some of whom went to college and some of whom did not. So, we have one group of people that entirely consists of people who went to college who will see a benefit of $10,000 per person (in very simple terms) and another group of people that consists of people who did and did not go to college who see nothing. What about the costs?
From what I've seen perusing online, the costs of this debt forgiveness is estimated to be about $2,000 per taxpayer. That means in reality, those who see their debt wiped away will only see a benefit of about $8,000 (assuming those people are taxpayers). That's still a pretty good deal. On the other hand, those who see no debt wiped away experience a loss of $2,000 - that's $2,000 per taxpayer that will have to be paid eventually, because the people who were going to pay it back were forgiven their debts.
Now we can get into why I say student loan forgiveness is a regressive tax. We are now in a situation where people who do experience loan forgiveness are being subsidized by people who do not. Remember, those who do experience loan forgiveness all went to college, while a portion who did not experience loan forgiveness did not. Let's think about the differences between an average person who goes to college and an average person who doesn't go to college - the person who doesn't go to college, on average, has worse health outcomes, worse labor market outcomes, and are more likely to go to prison. It doesn't take a PhD to recognize that the lives of the educated are easier than the lives of the uneducated. The educated work in nice offices with air conditioning; the uneducated work tough hours doing manual labor and sometimes struggling to avoid living paycheck to paycheck. That's why I got educated, after all. Of course, there are exceptions. That's why I'm talking about averages.
And that's why student loan forgiveness is a regressive tax. Someone has to pay for that forgiveness, and in this case, poorer people with relatively more difficult lives are subsidizing wealthy people with relatively comfortable lives. The situation is no different in Europe, where government supported education is widespread - that government supported education is paid for by someone. Nobody in Denmark is teaching for free. Who pays for that support? Taxpayers, of course. And the taxpayers who do not go to college experience very little benefit from their investments. This is especially true if we admit college often serves more to act as a signal than a way to build human capital, as Bryan Caplan notes in very convincing fashion.
However, very few seem to recognize this point. People on the left view this forgiveness as a good thing, and people on the right focus on the idea that student loan forgiveness constitutes "the responsible subsidizing the irresponsible." I think the bigger crime is forcing poor people to subsidize rich people. We're now in some sort of perverted, dystopian fantasy where doctors, lawyers, and business executives are being subsidized by fry cooks, construction crews, and single mothers who couldn't go to college because they had an extra mouth to feed. Liberals are celebrating. Conservatives are lamenting about not being subsidized by the poor themselves. And no matter how hard I pinch myself, I can't seem to wake up.
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