Tag: Loan Forgiveness

by Preston Cooper   The time-honored American tradition of outlandish political promises continues apace. Now, the spotlight is on student debt. Democratic presidential candidate Elizabeth Warren added to the debate recently when she put forward a proposal to cancel $640 billion worth of federal and private student loans. Warren touts her plan as a way to boost the economy, redistribute wealth, and help struggling borrowers. But as justifications for canceling nearly half the outstanding $1.5 trillion balance of student debt, these arguments are woefully inadequate. To her credit, Warren has recognized and partially addressed one of the major problems with canceling all outstanding student debt. Since student loans finance education, and education is associated with higher earnings, student debt is concentrated among high-income people—meaning that the benefits of loan forgiveness would flow disproportionately to the rich. Warren proposes forgiving smaller amounts of student debt for richer households, partially addressing this issue. Though this feature makes Warren’s plan slightly less problematic than other loan forgiveness proposals, it is still inherently flawed as a policy. That wealthier families benefit more from it only scratches the surface of the problems with student loan forgiveness. Nearly every argument offered in its favor is wrong.…