In the last few days, Democratic leaders in Congress have urged President Biden to cancel $50,000 in debt for each of the roughly 43 million people who borrowed to pay for their advanced educations. Biden has resisted doing this. He’s more comfortable with forgiving $10,000.
Apparently, the president has a better grasp than his fellow Democrats of something they should all be far more willing to acknowledge: Money for canceling debt has to come from somewhere.
Some of the more extreme student bailout proposals appeal to the heart far more than they do the head. Biden appears to recognize this. He also has some other pressing needs to deal with, such as infrastructure spending. Giving away the bank on one issue isn't very clever.
This is not to say that the student debt issue isn't a serious one. Between 1995 and 2017, outstanding federal student loan debt increased more than sevenfold, from $187 billion to $1.4 trillion (in real terms). And the total now waiting to be paid exceeds the total owed for credit cards and auto loans. But it is more than a bit interesting that no one seems too concerned about paying off all those shiny pickup trucks and Teslas when the average loan stands at $34,635 for new vehicles. Many of those debtholders must be struggling, too, no?
Debt is an important part of the typical person’s balance sheet, but net worth may be a more important focal point. It is possible to have a healthy net worth, which is determined by subtracting debt and other liabilities from assets, and still have sizable debt. On this point, the Federal Reserve recently indicated that the average net worth of families with a head of household who was younger than 35 was $76,300. The median net worth was $13,900. The fact that the average is so much higher than the median indicates that there are some people with a large net worth in the group. Why is this relevant?
Well, because some of the college debtholders are now lawyers, doctors, accountants, and young business people who have valuable assets, as well as quite a bit of student debt that they hope to (and most likely will) pay off. Those debtholders who have a healthy financial situation seem to have made a wise decision to borrow and invest in their own human capital. It paid off.
Before leaping to the conclusion that all student debt should be forgiven, it would thus be wise to take a closer look beyond the most superficial statistics. Rarely does the full truth fit in a talking point. Yes, there is undoubtedly a large number of struggling former students who wish that somehow their burden would be lifted. But there are also cases in which student debt enabled income, which then generated a buildup of assets.
On top of this, there is another question: Why should we as a nation choose to assist former students in paying off the debt they agreed to? How is that preferable to assisting those who are losing possession of the wheels that get them to work each day or that enable them to perform the duties of a blue-collar job because they can’t handle their pickup truck debt?
Let's have a more serious discussion on this important but too politicized issue.
Bruce Yandle is a contributor to the Washington Examiner's Beltway Confidential blog. He is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson University College of Business and Behavioral Science. He developed the "Bootleggers and Baptists" political model.
