Student loan forgiveness should include those whose debt is already paid

Forgiveness should benefit everyone who has ever taken a loan for their education.

A proposal for Joe Biden to forgive a portion of student loans — perhaps up to $50,000 per person — has been gaining ground since the election. I’m all for it, so long as we include those who have already paid off their loans. Here’s why.

The notion behind forgiving loans, long advocated by Elizabeth Warren, is not that loans are per se bad. It’s that education in America has gotten so expensive that in order to make huge loan payments, former students are putting off other economic goods, such as spending their loan payments in the economy at large, getting married, buying a home, and putting money away for retirement.

And in fact, that’s what happened to me. I went to a state school with the express purpose of minimizing the cost to me and my parents (I also got into the University of Chicago, and turned it down because of the high tuition). But I wanted to go to a good law and graduate school, and it cost me a pretty penny, even 35 years ago. Tuition at Georgetown was $15,000 per year, and I ended up with $60,000 in student loans that I paid off over 15 years. (I had classmates at the time whose combined undergrad and grad loans totalled $120,000.) Each month, I’d pay $650 to my landlord, and another $650 to my student loan overlords, while earning $32,000/year as a Senate aide. I finally paid off my loans at age 40, having paid $120,000 total, including interest. I saved for another five years, and then bought a one-bedroom condo at age 45. As for my retirement, I didn’t even begin contributing to it until I was in my 30s because I just didn’t have the money to spare. And anyone with expertise in retirement planning will tell you that losing those early ten years was a huge mistake.

That’s just an example of how high student loan debt can set back your investment in your economic future.

But under the current student loan forgiveness proposals, people like me wouldn’t have our loans forgiven because we already paid them back. But why not include us? We suffered the same economic harm that loan-forgiveness advocates warn about. In fact, unlike current students or recent grads, our economic suffering is neither future nor hypothetical: We already suffered the damage, and it continues to set us back today as we look towards an eventual retirement with no pension, uncertain Social Security, and an insufficient IRA. There’s an argument to be made that people who have already paid off their loans should be first in line for restitution, as they have suffered the greatest economic harm, and certainly more harm than those who have yet to pay a dime.

A similar problem under the current proposal, what to do with recent grads? Let’s say Joe and Mary each graduate State U. with $25,000 in student loans. Each gets a first job making a similar salary. Joe takes his earnings and spends it on a nice apartment, food, drink, and friends. Mary chooses to cut her costs by living with her parents, and with the savings she makes extra principal payments on her student loans, as she just doesn’t like having debt over her head. Under the current forgiveness proposals, Joe would get more benefit than Mary since he owes more in loans, while Mary would be penalized for tightening her belt and being (too?) responsible about her debt.

Or, let’s say Joe and Mary graduate with equal debt of $25,000, but Joe decides to go to grad school — which increases his loans by another $25,000, and delays payment on his existing loans — while Mary goes to work, and starts paying off her loans immediately, to the tune of $191 per month. At the end of an additional four years, Joe is ready to graduate with $50,000 in loans, not yet having made a single payment, while Mary has been making loan payments all four years, totalling $9,168, and still owing $19,766 in principal out of the original $25,000 debt. Joe could potentially have all his loans forgiven, while Mary would never get back the over $9,000 she already spent servicing her debt, all because Joe decided to go even more in to debt, while Mary chose to pay hers off.

In other words, there are a lot of scenarios under which people who have already begun to pay back their student loans — i.e., those already suffering economic harm from these loans — get less help.

Some student loan forgiveness advocates vehemently oppose increasing the pool of those eligible for relief. They say that student loan forgiveness should be like tax cuts, you don’t get money back for taxes (or loans) already paid. But that’s an imperfect comparison. Most of us will be paying taxes until the day we die. So new tax cuts — assuming they’re fair — will benefit all of us going forward. Student loan forgiveness, as currently imagined, only benefits a small subset of Americans, and even a subset of those who ever took student loans. Most of us will see no benefit at all.

Others have suggested that if you can afford to have paid off your loans, then you’re obviously wealthy and don’t deserve forgiveness. Extrapolated writ large, that would mean anyone who has serviced any debt, without default, is per se well off and hasn’t set themselves back financially. That’s absurd. Some wealthy people have paid off their various loans. While lots of other Americans dutifully make that loan payment every month, putting off contributing to a retirement fund or saving for a home (or paying the electric bill, or worse).

College costs are too high. Forgiveness programs do nothing to address that cost for current or future students AFTER the forgiveness is granted. If Joe’s and Mary’s loans are forgiven while they’re juniors in college, what happens to the loans they take their senior year, or when they go to grad school? And what happens to Mary’s sister, Sue, who is starting as a freshman in 2022, long after the forgiveness program is over? Sue will end up with $25,000 in debt, as did Mary, and the cycle of indebtedness will begin again.

That doesn’t mean that providing restitution for those Americans who have already taken student loans at some point in their lives wouldn’t be of benefit to them and the economy. But this is a larger problem that won’t be fixed through a single handout. And to the degree we do address it with an initial round of forgiveness, it should benefit everyone who has ever taken a loan for their education.