Forgive Student Loans, but Only a Little

The most distressed borrowers didn’t get degrees and owe less than $5,000.

By Beth Akers of The Manhattan Institute.

"Student-loan cancellation may be an appealing idea, but it would enrich the privileged and leave behind—or perhaps even drain money from—the truly needy. Progressive calls for President-elect Joe Biden to forgive student debt in his first 100 days of office should be ignored in lieu of a more moderate proposal: forgiveness capped at $5,000 of debt.

Workers with a college degree are the highest paid in the economy and the last to get laid off during a downturn. Sure, having debt is worse than not having debt. But because of the large financial returns to postsecondary education, folks with debt and a degree are often better off than those who have neither. It’s clear in the data: Borrowers with the largest balances are the least likely to default. That’s because they’ve often invested in professional or graduate degrees that lead to careers with high earning potential.

Borrowers who owe less than $5,000 are the most likely to default. Many in this category started a degree but didn’t finish, and thus aren’t enjoying the higher earnings afforded by a degree."

"That brings us back to my proposal, a $5,000 student-loan jubilee in the form of a one-time tax credit. That would ensure that most borrowers who are truly up a creek can escape debt and move on with their lives."