Instead of alleviating rising debt burdens, Joe Biden’s student loan debt “forgiveness” has caused recipients to take on additional non-student loan debts, a new economic analysis shows. The data shows that the beneficiaries responded not only by taking on more debt but also by working and earning less—the opposite of the intended effect.
Moreover, the study found that loan forgiveness didn’t go to those most in need, but rather “disproportionately went to higher-income borrowers” who have the greatest ability to repay their loans.
Student loan forgiveness—forcing two-thirds of Americans without college degrees as well as those who worked their way through school or already paid off their debts to pay off the loans of others—has always been unjust.
But advocates ignore the costs imposed on others and argue that freeing student loan borrowers of their debt will set them on a path toward greater opportunity and success.
Yet even ignoring the costs imposed on others who pay for forgiven debt, the authors of a new “Student Loan Forgiveness” study found that argument suspect.
The study, which analyzed “the largest-ever student loan forgiveness in history,” including about 3 million borrowers who had an average of $44,000 of their student loans canceled, found that recipients of so-called forgiveness increased their nonstudent loan debt by 9 cents for every $1 of student loan forgiveness. This included higher balances for mortgages, auto loans, and credit card debt.
Moreover, recipients of loan forgiveness also responded by reducing their work hours and taking lower-paying jobs. This is presumably because lower or no student loan payments afforded them the ability to work less and take lower-paying jobs. Average earnings of recipients fell by $44 per month over the six months following their debt cancellation. About half of this came from working less and half from taking lower-paying jobs.
While $44 was the average drop in earnings across all six months, earnings declines started small and continued to grow over time, reaching $75 less per month in the sixth and final month measured. If that $75 decline held steady, it would translate into $36,000 lower earnings over a 40-year career.
Ironically, this implies that student loan forgiveness further reduces the already low and sometimes negative returns on investment for many higher education degrees.
The “benefits” to recipients of student loan forgiveness include the ability to take on more debt, to work less, and to take lower-paying and presumably less challenging jobs.
The consequences for the taxpayers who have to repay those recipients’ debts are the opposite: They’ll be more debt-constrained and will have to work more and pursue higher-paying and more challenging jobs to pay for the increased burden.
What makes this not only economically detrimental, but also especially unjust, is that recipients of student loan forgiveness, on the whole, tend to have higher incomes. According to the study, loan forgiveness was given to borrowers who, prior to forgiveness, had predicted earnings that were $115 higher per month than borrowers whose student loans were not forgiven, and $193 higher predicted monthly earnings than the general population.
While taxpayers have already been charged with at least $133 billion for canceled student loans, the good news is that Trump administration and the new 119th Congress plan to eliminate the Biden-era debt amnesty and to instead address the root causes of excessive college cost increases through legislation such as the College Cost Reduction Act.
Among its many components, the act would ensure that colleges have “skin in the game,” so that they have the incentive to keep costs down, provide a quality education, and promote student success. The act would also foster competition that drives down costs and repeal excessive regulations that drive up costs.