Is student loan cancellation progressive or regressive? It doesn’t really matter

Ever since Democrats floated the idea at their 2019 party primary, the public has considered the idea of widespread student loan forgiveness. Now, as President Biden once again looks at debt cancellation, policy experts are engaging in a parallel debate over whether student loan cancellation would be progressive or regressive, delivering benefits to either the most economically needy or to the already well-off. But whatever you call it, blanket student loan forgiveness would miss the larger issue at hand: economic vulnerability.

A new report from the Roosevelt Institute attempts to refute one of the most cited research papers on student loan forgiveness, which concludes that loan cancellation is regressive because it would primarily benefit high-earning professionals who take out large loans to complete their graduate degrees. The Roosevelt report argues that the focus on income, instead of wealth, leads to incorrect conclusions over how progressive this policy would be.

It’s true that a newly-minted medical doctor typically has both high earnings and very negative wealth. But where does that put them on the spectrum of economically vulnerable or not? The focus on student loan debt and lack of wealth fails to account for the human capital an individual holds. That’s because people with student debt have less wealth but far more potential for future earnings. Those with the potential to earn lots of money in their careers shouldn’t be considered economically vulnerable. The method used in the Roosevelt report is akin to measuring an individual’s net worth by counting their house’s mortgage as a liability without counting the value of their home, which they could sell in the future to make a profit.

The reality is that many people with student debt, even large sums, are not especially economically vulnerable. That’s because they have skills and credentials that lead to higher earnings than they’d have otherwise. Despite having greater wealth, thanks to a lack of debt, someone without a college degree generally would be in a more precarious financial position.

Common sense would say that those who are more economically vulnerable are in more need of aid from the federal government than those who are less vulnerable. However, this line of thinking is absent from the current policy debate.

Of course, not everyone falls into one of these categories. Some borrow but don’t complete their degrees and some borrow to pay for degrees that don’t lead to job opportunities that would justify the cost. Fortunately, we already have a set of programs in place — called income-driven repayment — that protect borrowers in these circumstances from having to repay unaffordable debts. 

I’m guilty of relying on the notion of regressivity as an argument against student loan cancellation. When I raised it, my goal was to make people aware that a lot of high-earning individuals, those more likely to thrive economically, would be the main beneficiaries. But I think we’d all benefit by dropping the jargon and having a serious debate about who we want to be first in line for taxpayer-funded aid. For me, it’s not those doctors and lawyers who start their professional lives deeply in debt — it’s those who are without a pathway to economic prosperity. 

Rather than trying to shore up support for student loan cancellation, Democrats should spend resources on anti-poverty programs, or strengthen the existing safety net for borrowers. Focusing on these policy reforms and initiatives, rather than student loan cancellation, would do more good for those who truly need the assistance. 

Beth Akers is a resident scholar at the American Enterprise Institute. She is the author of “Making College Pay: An Economist Explains How to Make a Smart Bet on Higher Education.”