Canceling student debt would backfire on Biden

President-elect Joe Biden is under pressure to do something that sounds bold and progressive when he takes office: Cancel the student debt of millions of Americans. If he really wants to help the most financially challenged, however, there are much better ways to do it.

No doubt, student debt is a problem. The rising cost of college has far outpaced incomes and federal grants, leaving little option but to borrow. The resulting obligations — an estimated $1.55 trillion as of September, up from $250 billion in 2003 — weigh on the entire economy, leading people to delay steps such as starting families and buying houses. The burden has fallen particularly heavily on Black people, who are often targeted by for-profit schools marketing diplomas of questionable value.


The more-progressive wing of the Democratic Party advocates a simple solution: Write the debt off. Senators Elizabeth Warren and Chuck Schumer want Biden to cancel up to $50,000 per borrower, using an executive order to bypass Congress. Biden himself has supported canceling up to $10,000, as part of a broader Covid-19 relief bill. Some studies suggest this could both benefit individual borrowers and offer a good way to boost an economy struggling to recover from the pandemic.

If only. No matter how it’s designed, student-debt forgiveness is very poorly targeted. A lot of the money tends to go to the relatively well off, who are more likely to attend college and hence to have debt. Consider the $10,000 proposal: An analysis by the Urban Institute suggests that it would cost almost $370 billion, about $150 billion of which would accrue to the top two-fifths of U.S. households by income. Applied elsewhere, that $150 billion could head off evictions for a year by increasing federal rental assistance, or ensure that the millions of U.S. children currently going hungry are fed for the next two years.

Even if relief could be better focused on the poor, severe drawbacks remain. For one, the vast majority of Americans who don’t have student debt would rightly feel left out. Many never had the opportunity to get a higher education; others put off financial goals (such as saving for retirement) to pay it down. Also, it would do little to improve the immediate cash flow of the many debtors who — because they’re in default or in income-based repayment plans — are making small or no monthly payments. As a result, the effect on the broader economy would be much weaker than if the government just sent people money. Jason Furman, who headed the Council of Economic Advisers under Barack Obama, estimates that it would be close to zero.


Biden should spend what political capital he has on measures that would genuinely make a difference. The first priority should be to pass a new Covid-19 relief package, including expanded funding for unemployment benefits, rental assistance and food stamps. Beyond that, he should stick to his plan to reform education finance — for example, by enrolling borrowers automatically in more generous income-based repayment plans (in which the poorest pay nothing), forgiving debts in cases where for-profit colleges conferred worthless degrees, making student debt easier to discharge in bankruptcy, and using grant money to cover the full cost of a quality four-year degree for those who can’t afford it.

Threatening to cancel student debt with a stroke of the presidential pen might help prod Congress in the desired direction. Actually doing it would be an economic and political mistake — one that would cast doubt on Biden’s pledge to govern for all Americans.