Should we cancel student debt?

No.

Elizabeth Warren was in the news this week saying not only should we cancel student debt, we should do it by executive fiat.  Hmmmm.

First, as to cancelling student debt.  Not-exactly-the-Heritage-Foundation, but Brookings’ Adam Looney released an analysis on this last year on why this should be  problem for liberals:

Despite her best intentions and her description of the plan as progressive, a quick analysis finds the Warren proposal to be regressive, expensive, and full of uncertainties. As I show below, the top 20 percent of households receive about 27 percent of all annual savings, and the top 40 percent about 66 percent. The bottom 20 percent of borrowers by income get only 4 percent of the savings. Borrowers with advanced degrees represent 27 percent of borrowers, but would claim 37 percent of the annual benefit. [emphases mine]

It’s unclear in the proposal where our education system would go next if this proposal were adopted. While Senator Warren’s proposal offers “free college” at public institutions (another regressive element given 35 percent of public college students are from families in the top 20 percent of the income distribution), millions of students will continue to borrow to attend private institutions, graduate and professional schools, and to cover living expenses while enrolled.[1] How can we sustain a system with open-ended borrowing and broadly available loan forgiveness?

The simple fact is that it’s hard to design a progressive and coherent loan relief policy. In one way, it’s like the subprime crisis: too many borrowers were fooled (or fooled themselves) into taking out speculative loans that were impossible to repay. But the vast majority of prime borrowers were responsible, made conservative choices, and continued to pay their loan obligations. We struggled then to differentiate the deserving from undeserving, responsible from irresponsible, and with the potential costs of widespread write-downs.

Debt relief for student loan borrowers, of course, only benefits those who have gone to college, and those who have gone to college generally fare much better in our economy than those who don’t. So any student-loan debt relief proposal needs first to confront a simple question: Why are those who went to college more deserving of aid than those who didn’t? More than 90 percent of children from the highest-income families have attended college by age 22 versus 35 percent from the lowest-income families.

As for the executive fiat part, Drum:

This is getting out of hand. When President Obama signed the DACA executive order, which defers deportation for immigrants brought into the country illegally as children, he did so under the theory that immigration law gave an unusual amount of latitude to the executive branch. That was questionable, and it will eventually be decided by the courts, but at least it was a theory. Conversely, the notion that the executive can simply choose not to collect debt seems no more plausible than Donald Trump’s notion that he can withhold aid to Ukraine just because he feels like it.

For starters, no, this isn’t “just the same thing” as prosecutorial discretion. That’s a longstanding prerogative at all levels of government. Unilaterally canceling debt isn’t.

And while the power to create debt may include the power to cancel it, that’s not at issue here. The question is who gets to cancel it. Congress certainly can, but there’s no reason to think that the president can do it without clear statutory authority.

Finally, how far do we want to take this? Can President Trump eliminate the corporate income tax by simply directing the IRS not to collect it? Could President Sanders hand out loans to renewable energy companies and then turn them into outright grants by deciding not to collect them? Once we go down this road, there’s no telling where it stops.

Congress has the power to delegate broad authority to executive branch agencies, but while that power may be broad, it’s not infinite. It depends largely on the wording of the enabling statute. So the key question is the one at the end of the excerpt above: did Congress intend to give the education secretary power to cancel vast swaths of student debt unilaterally? I think we all know the answer to that.

Ugh.  As you know, I like Warren.  In large part because she is typically so thoughtful about public policy.  In a great Gist segment, I think Mike Pesca got to what really bothered me:

Elizabeth Warren’s brand has been I have a plan for that, but I always took the unstated premise to be I have a researched, considered, possibly tried and tested plan for that. This plan is not any of those things, not even much of a plan. It’s a salvo in a seemingly desperate one at that.

As for what policy steps to actually take?  Adam Looney is on that, too.

What really frustrates me as that I know Elizabeth Warren is too smart to truly think this is a good idea.  Or, if she has somehow motivated reasoned herself into thinking it is, I’ve got to question her judgment.  Now, I still think there’s an excellent case to be made for Warren as president and I would enthusiastically support her in the general election.  But, as for the best choice among the Democratic contenders, I really don’t know.  I want Booker back!

About Steve Greene
Professor of Political Science at NC State http://faculty.chass.ncsu.edu/shgreene

One Response to Should we cancel student debt?

  1. samuel h brewer says:

    Without arguing the merits of the policy (I’m in favor), an NPR segment reporting on this proposal stated that the secretary of education has explicit statutory authority to forgive student debt at their discretion.

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