Targeted Debt Forgiveness Isn't a Fair Compromise | Opinion

The Biden administration could cancel student loans in the foreseeable future—but only for some. Forgiveness of up to $10,000 in student loans for each borrower and elimination of repayments for households that earn up to $125,000 per year are some of the ideas on the table. The Biden administration's interest in targeted forgiveness is an attempt to pass a compromise between supporters and critics of student loan cancellation.

Student debt forgiveness has been a divisive issue for some time. Democrats are typically more supportive of it than Republicans. But there is a divide even among Democrats, as the more moderate members of the party do not champion blanket debt forgiveness.

Targeted forgiveness, however, appears to have more support. Many polls show voters support some kind of targeted relief rather than widespread elimination of debt. Even those who didn't attend college could be convinced to support targeted forgiveness measures. And longtime opponents of student debt cancellation, such as commentator David Brooks, have reconsidered their stances when it comes to targeted forgiveness. Targeted forgiveness, after all, does not benefit well-to-do doctors and lawyers.

But targeted forgiveness is still an unfair compromise.

Targeted forgiveness seems like a good compromise only because the public is used to debt-forgiveness proponents who advocate for a complete debt jubilee. When a less extreme solution is presented in contrast, both policymakers and the public are likely to see it as a reasonable option. But targeted forgiveness is still extraordinarily expensive, even if it's cheaper than a total debt jubilee.

The New York Federal Reserve estimates that forgiving $10,000 per borrower would cost $320 billion. These costs rest on the shoulders of those who did not borrow any student loans, those who already repaid their debts and those who did not attend college. Rapid inflation, which is largely attributed to Biden administration policies, will already cost Americans an extra $5,200 per household this year. Student loan forgiveness will further exacerbate inflation.

Columbia University campus
NEW YORK, NY - FEBRUARY 24: Prospective students wait for a tour to begin February 24, 2022 on the campus of Columbia University in New York City. Robert Nickelsberg/Getty Images

Calls for targeted forgiveness also do not address the underlying causes of the student debt crisis. College costs have more than doubled since 1980, but not because college degrees became more valuable. Unnecessary employment regulations, overreliance on federal aid and "higher education for all" messaging have made college education an expensive bottleneck to decent jobs. Colleges have also expanded their bureaucracies, adding to the cost. Federal student loan forgiveness will continue to frustrate Americans so long as these issues remain absent from the discussion. Student loan forgiveness must include higher education reform.

If we're willing to compromise on student loan forgiveness, then taxpayers should get a deal worth at least $320 billion.

In exchange for targeted debt forgiveness, politicians should demand that all federal student aid, including loans and Pell Grants, be conditional on the student's academic merit—as measured before students enter college. Far too many universities admit students with poor academic preparation, misleading these students about their probability of completion. Federal funds must prove to taxpayers that their investments were worth the costs. A 40 percent college drop-out rate is not something taxpayers should fund.

There should also be more requirements for would-be borrowers to receive federal student loans. The current system does not have an ability to check whether students can repay their debts, making federal lending an inherently risky endeavor. Current borrowing requirements also obscure the decades-long responsibility students acquire by taking on student loan debt. One way to reduce risk in federal lending is to only offer government loans to students pursuing degrees in profitable and in-demand fields, provided that students have demonstrated the necessary academic potential to make use of such a degree. Computer science majors, for example, currently have a better return on investment than psychology majors. With a shortage in domestic STEM workers, tying student loans to in-demand fields at least demonstrates to taxpayers that their funds were put to good use.

Universities, additionally, should bear some financial responsibility based on the number of their students eligible for the targeted forgiveness program. These universities should pay at least 30 percent of the debt that would be forgiven for students who attended their university. It's a university's responsibility to admit qualified students and to ensure they are prepared for graduation. There would be no student debt crisis without the universities' acceptance.

These proposals would decrease the demand for a college education, which would in turn force universities to compete for students by lowering their prices. As a result, college would become more affordable for those who do attend. Students would also have an easier time pursuing alternative options, such as in the skilled trades or simply entering the workforce.

A compromise is two-sided—it is not one side getting a little less of what they want. It is both sides getting something that they want. If Congress wants to pass targeted forgiveness, the Americans subsidizing this policy should receive their fair share.

Neetu Arnold (@neetu_arnold) is a senior research associate at the National Association of Scholars.

The views expressed in this article are the writer's own.