Student Loan Forgiveness Benefits the Poor — Not the Elite
Student loan debt forgiveness has been a contentious topic for many years. President Biden recently intensified the debate after announcing his plan to relieve up to $20,000 in debt for eligible borrowers — only months after completely canceling loans for borrowers who attended shady for-profit institutions. In an opinion for Newsweek, Charles Stallworth, a union railroad worker, expresses his stark opposition to student loan debt forgiveness, labeling it as the progressive’s version of “trickle-down economics.”
I chose to rebut Stallworth’s opinion for a couple of reasons. The omission of consequential facts by the opposing conservative position in the argument exploits class warfare tactics that skews the opinion of many Americans like Stallworth. Also, Stallworth and I share similar demographics as Black male blue-collar workers. Yet we both are partial to our experiences on the issue. I graduated from college with an average amount of student debt, while (I will assume from his position) Stallworth did not.
Biases aside, any opinion on any subject is immature and devalued when the full breadth of facts and nuances are misrepresented or not presented at all. And given the potential effect that student loan forgiveness could have on the lives of millions of Americans, it certainly deserves a factual disquisition.
“Trickle-Down Economics” and the Elite
The crux of Stallworth’s grievance centers on his belief that student loan forgiveness benefits the richest and most powerful citizens. With that, he tags the cancelation as the left-wing’s brand of trickle-down economics, the infeasible supply-side Reaganomics theory that suggests that tax cuts to the rich will “trickle down” to the rest of society. This is an obvious misnomer — that is, unless Stallworth assumes that all college graduates are somehow elite.
Maybe he does?
“The progressive approach seems to be telling folks that…it would benefit us and make our lives better if taxpayers all banded together to pay off the student loans of the elites.”
To be fair, Stallworth probably doesn’t believe that all college graduates are the elite; instead, he might believe that the elite amongst student loan borrowers will benefit the most from student loan debt cancelation. But the latter assumption is still not true. Indeed, Stallworth’s designation of the “elite” student loan borrowers is based in the conservative rhetoric that has framed debt cancelation as everything from a handout to “reverse Robin Hood” by positing most all cancelation proposals as a “big transfer of wealth” from the poor to the rich. But these hyperbolic headlines and talking points conveniently ignore key facts — like private vs. federal loans, wealth vs. income, and the particular debt that can be canceled under current plans — that ultimately misrepresent the true beneficiaries of loan cancelation.
Private Loans vs. Federal Loans
The cornerstone of the conservative argument is rooted in one particular cherry-picked stat that ostensibly supports the “elitist” label applied to student loan borrowers: “the top-40 percent of households hold 60 percent of the student loans.” Unironically, this is also Stallworth’s sole analytical reference to back his opinion. But the problem in referencing this Brookings study (and similar prior studies) is that it pertains to the overall picture of student loan debt that includes private loans and not the subject of student loan debt cancelation. For the analyses that focus on the latter, private loans are not included because these debts are not forgivable under Biden’s relief plans. The low-credit risk, private loan borrowers are usually eligible for lower refinance rates by third-party lenders and when plucked from the equation, studies show the bulk of government loans are instead held by higher-risk, low-wealth borrowers — not the elite.
Wealth vs. Income
Critics of student loan debt cancelation tend to draw a positive correlation between a college degree and income. After all, college graduates do earn roughly 75% more money over the course of their careers than individuals with only a high school diploma. But income and wealth are not analogous and earning a higher income does not automatically equate to an accumulation of wealth. This is especially true when wealth is considered instead of income regarding federal student loan cancelation. According to a Brookings analysis of 2018 SIPP data, 51% of student debt is held by households with zero to negative net worth. While Stallworth believes that only “some people with student loans are poor,” the more in-depth research that accounts for the other measures of poverty like wealth and socioeconomic factors find that many poor households not only hold the most significant amount of debt, but that debt cancelation can potentially catalyze middle-class wealth for these same households.
Higher Education and the American Dream
But how did we get here — “here” being the exorbitant burden of federal student loan debt? In exploring the national ethos that is the “American Dream” through the lens of education as an implicit path to its attainment, we can uncover failure of government institutions and systems that is the waking reality for millions of degree-pursuant borrowers.
Americans are taught from an early age that hard work and determination provide the best opportunity for upward social mobility, and that education is an optimal, safe route to the middle class. For wealth-poor families, especially Black students lacking intergenerational wealth, college appeals as the best bet to provide a prosperous life for themselves and their household. So when Stallworth declares that “it’s on [borrowers] to know what you’re getting into…it’s on you to do your due diligence” and that “taking on thousands of dollars in debt [has] consequences,” his sentiment ignores the promoted reward of higher education to low-wealth borrowers who lack any wealth to risk. And since student loans have been historically viewed in the manner of mortgage loans as “good debt” (with student loans theoretically appreciating in value over the loan’s lifetime), the debt was never meant to be a “consequence” of possession but a causation of social mobility.
As mentioned earlier, the more accurate correlation is the relationship between debt and wealth that reveals the burden of student loan debt on low-wealth and middle-class households. That burden gets weightier after graduation for Black borrowers whose families have endured institutional discrimination and systemic inequality for generations. And these preordained setbacks present in an interesting scenario for many of these borrowers. Consider this: graduates from White households are more likely to receive wealth transfers from their families for an education and home purchases. Black graduates, on the other hand, are more likely to assist their parents with an increase of income, in a sense of “reverse inheritance.” And Black graduates’ homeownership rates are lower than even White high school dropouts. For many borrowers trapped in this debt cycle, the American Dream seems more like a dangling carrot.
The Role of Government in Higher Education
The federal government has long played a major role in higher education. World War II veterans were greeted with the G.I. Bill when returning home from service which included low-interest business and mortgage loans and tuition for college. But though benefits were theoretically provided for all veterans, Black veterans coming home from war were met with a wave of discrimination. Jim Crow influence on the G.I. Bill led to states administering benefits instead of the federal government, and Black veterans were denied bank loans, skilled jobs, and educational benefits. Over 4 million home loans were given to White veterans along with training and education. Black veterans were practically shut out, leading to an even greater expansion of the racial wealth gap.
Amid the tide of political pressure, the federal government began to prioritize college 20 years later. In 1965, President Lyndon Johnson signed the Higher Education Act and proclaimed higher education to be “no longer a luxury but a necessity.” The Act included the Federal Pell Grants; but like many federal programs that lack oversight and institutional regulation, years later the grants have failed to fulfill its intended purpose of affordable education. They once covered almost 80% of a four-year degree, but rising tuition costs have stunted the efficacy of grant subsidy. The cost for private and public tuition has nearly tripled since 1980 while grant values have stalled. This has forced students to borrow the balance of their costs to obtain a degree.
Who’s Footing the Bill?
After debunking the “elite” label of the main beneficiaries of student loan relief, the second prong of Stallworth’s protest regarding the cancelation falling into the laps of taxpayers deserves examination. Though he views it as “a tax on those of us who chose not to go to college…” (though borrowers in the workforce are also taxpayers), this presumption is a misunderstanding of the manner of cancelation by executive power as opposed to a congressional act.
Tax hikes (and spending cuts) are acts authorized through Congress. Since Biden is canceling student loan debt via emergency presidential powers, the $400 billion debt is essentially added to the national deficit. This means that student loan debt has no immediate impact on taxpayers.
If Congress chose to cancel the debt later, an analysis by the National Taxpayers Union Foundation places the theoretical per-taxpayer burden at $2500 when distributed across 158 million taxpayers. But this figure pertains to all taxpayers (including borrowers) — and the NTFU also notes that actual taxes would follow the current system of higher earners paying more in taxes than low-income earners. Congress could also pinpoint an increase on taxes for certain businesses to cover some debt cancelation costs.
While Biden’s use of executive action to cancel student loan debt circumvents congressional input, some conservative groups are looking to challenge the legality of this use of emergency powers. But the Biden administration is confident in its action under the HEROES Act of 2003 which is supported by the Department of Justice legal memo on the subject. Specifically, the DOJ finds that the Act grants the education secretary the authority to “alleviate the hardship that federal student loan recipients may suffer as a result of national emergencies.”
The Cares Act
Borrowers have suffered economic hardships that were caused and exacerbated by the Covid-19 pandemic as a national emergency like everyone else. But when Stallworth and other critics proclaim student debt cancelation isn’t “free; it’s taxpayer funded,” that same charge is hardly ever levied against other federal emergency relief efforts for Americans. Yet a ripe argument could be made against actions that have more immediate ramifications for taxpayers and also have benefited the same elite that Stallworth denounces, like the Coronavirus, Aid, Relief, and Economic Security (CARES) Act.
Most Americans are familiar with the provision of the Act that sent about 472 million payments (that totaled about $803 billion) to households affected by the pandemic. But many people may not be aware of certain provisions that provided a hefty basket of relief for the ultra-rich. These include tax incentives like corporate interest deductions, charitable deductions, treatment of corporate loss, and pass-through entity tax relief. The latter has been estimated to benefit about 43,000 taxpayers with income of $1 million or more (an assistance of over $110 billion equaling about $2.6 million for these filers).
And then there are the Paycheck Protection Program (PPP) loans.
When proponents of student debt cancellation mention PPP loans in comparison of forgivability, the program’s implementation and intent is often used as a rebuttal. As the NTU’s Director of Federal Policy Andrew Lautz explains, he doesn’t find student debt cancelation and PPP loans an “apples-to-apples comparison” because the latter was “passed by Congress with the clear, bipartisan intent for loan amounts spent on payroll to be forgiven.” But intent does not equal impact or outcome, and the impact of PPP loan forgiveness versus student debt cancelation is worth exploring — especially given the loans’ $953 billion price tag. And since it is included in the CARES Act passed through Congress (who has the ability to cut spending and hike taxes to counter costs), these loans are actually a more imminent issue concerning Stallworth’s tax-burden anxiety.
Even Lautz concedes that “the efficacy of PPP is certainly up for debate.” But the numbers prove the PPP’s inefficacy is undebatable. The ease of obtainment for these loans meant for businesses to retain employees has lead to scammers perpetrating the largest fraud in U.S. history, with stolen money topping $75 billion. And fraudsters happily stuffed the coffers of well-to-do businesses and luxury brands. From buying Teslas, Lamborghinis, to private jet flights and vacations, scammers funded an opulent lifestyle all on the taxpayer’s dime. And it’s the scam that keeps on taking. President Biden recently signed two bipartisan-supported bills giving 10-year statutes of limitations to the Justice Department in prosecuting PPP fraud that will undoubtedly require additional taxpayer-funded resources.
And even legit claims carry some implications for taxpayers. Studies have found that the costs of jobs ‘saved” were higher than the actual wages paid to employees. Specifically, the cost to taxpayers was about “$4 to every $1 of wages and benefits received.” The excess went to business owners, creditors and suppliers — and about 72% of the PPP funds went to households in the top 20%. Included in that top mix were celebrities worth millions whose loans were forgiven. Jared Kushner, Khloe Kardashian’s Good American LLC and Reese Witherspoon’s Draper James LLC were just a few of the relief recipients who loans were wiped out. And though the forgiveness was legal, the optics and specifics of millionaires’ and billionaires’ small businesses taking federal bail money lends a viable argument to the regressivity of PPP loans versus the progressivity of student debt loan forgiveness.
Student Loan Debt is an American Crisis in Need of Redress
Stallworth may not believe he has benefited from the product of higher education because he does not have a college degree, I beg to differ. As People of Color especially, he and I are direct beneficiaries of the opportunities afforded us by way of the human and civil rights movements that sprung from college campuses in the 60s. Groups like the Student Nonviolent Coordinating Committee (SNCC) invigorated the Civil Rights Movement. In his 1960 “A Creative Protest” speech in Durham, North Carolina, Dr. Martin Luther King, Jr. stated that “What is new in your fight is the fact that it was initiated, fed, and sustained by students.” Many White students also joined the fray as college opened their eyes to the “problems in the way that America was doing democracy, particularly with racial segregation in the 60s.”
But we don’t have to travel back in time to support a case for higher education as a “public good.” We all benefit from an educated society in areas of health, civic involvement, and crime reduction. On a more practical plane, the work and services provided by individuals who pursue a higher education, like doctors, scientists, and engineers — is essential to the sociocultural continuity of a civilized society. And it’s important to note these types of gray-collar professions like engineers with “white-collar education and blue-collar job expectations” as conservatives’ populist rhetoric has proven effective in accusing federal student loan borrowers of being the elite in order to segregate this group from the working class — even as many of these same republicans are degree holders who attended college themselves, albeit at an affordable cost.
Given the “you vs. them” conservative tactic that is used, Stallworth’s overall sentiment of being stiffed as a blue-collar worker is understandable. But this debt crisis is not a black-and-white, zero-sum issue. It is a complex matter in which the facts and figures expose how federal, state, and higher education institutions have failed millions of Americans in their pursuit of the American Dream. While the federal government now assumes its fault, we must also hold colleges accountable for incomprehensible yearly tuition hikes — as well as corporations enjoying exorbitant profits while wage stagnation along with student loan debt burns the wealth candle for low-income borrowers at both ends.
Student loan debt cancelation is not trickle-down economics; it can actually encourage a “trickle-up” effect in assisting those who need the help. As Stallworth is a union railroad worker in an industry arguing its own woes, I’m sure he and his peers can appreciate the sentiment of this counter.
