Don’t Means Test Loan Cancellation. Age Test It.

To my surprise, it looks like some kind of action is coming from the Biden administration on canceling federally held student loan debt.

The punditocracy has declared that any debt forgiveness must be means tested, because we don’t want rich people benefiting from such a move, and also, how would a plumber feel about this, or something like that?

To be honest, I stopped paying attention to that chatter, because I haven’t heard anything new on that front in a while.

On the one hand, means testing makes sense, because it may make the action more politically palatable and, in the minds of some, “more fair.” The thinking goes that doctors and lawyers with six-figure incomes shouldn’t benefit from forgiveness meant to target the truly struggling.

I have a couple of three thoughts on that front. One, we know from long experience that means testing always leaves out more of the deserving than it excludes those who don’t need the help while also increasing the overall administrative cost of delivering the aid. It is literally less efficacious and less efficient.

Two is that anyone who has student loan debt is not “wealthy,” not yet at least. The wealthy people with high-paying jobs are the ones who didn’t need to go into debt to get those degrees. Social media is littered with people with six-figure incomes who still owe as much or more than they took out in loans because of the interest. Meanwhile, the folks without debt are rapidly galloping away from their peers when it comes to wealth accumulation, with those who started with unlikely to ever catch up debt. This lack of generational wealth behind them disproportionately affects the minority borrowers. Canceling student loans wouldn’t erase this wealth gap, but it sure wouldn’t hurt.

Three, let’s say we overshoot the mark and really give people who neither need nor deserve the help too much, that actual wealthy people get some of this money. We have a method for recapturing that money without excluding any of those who need it: taxes.

I’m on the record supporting full cancellation of student loan debt not because of the politics or the economics of such a move but because doing so would be an acknowledgment that we as a culture and society screwed up by allowing college costs to increase beyond the economic benefit of the degree for many who borrowed.

I also believe that it would be a catalyst for the necessary rethinking on how we fund postsecondary education going forward. As I argue in my book sustainable. Resilient. Free. The Future of Public Higher Educationcanceling debt today to just do it again tomorrow is no way forward, and there is a fairly straightforward solution to making postsecondary education more accessible for more students.[1]

But … if people are truly focused on making any debt “cancellationfair,” means testing doesn’t go nearly far enough.

This is why I think any debt relief should do better than means testing.

Instead, we should age test student loan debt relief.

Student loans are a government response meant to make college affordable, a positive investment in one’s future. If we’re against people getting something they don’t deserve, why are we letting all of the people (like me) who went to college before it became so costly off the hook?

Here’s my proposal: we create a reasonable college expense index based in the historic costs of college, and then anyone who has paid more than that gets their debts forgiven.

The difficult part would be to find the correct number to index to, so as a start, let’s try using my age cohort as an example.

According to data from the National Center for Education Statistics, folks like me who went to four-year public universities and paid in-state tuition from 1988 to 1992 would’ve laid out, on average, around $8,500 total for their degree, which is almost dead on what I paid at the University of Illinois.[2]

If we decide that the $8,500 I’d paid in full by the end of 1992 is the baseline amount that education should cost, we can simply adjust for graduation year and inflation to find out what those with debt should have paid and then cancel any amount above that.

So, for example, when adjusted for inflation, a 2012 graduate should have paid $13,909 for their four years of tuition. Anyone who has paid more should have their remaining balance forgiven.

I’m going to guess that covers just about everyone who graduated in 2012, or 2013, or 2014, or 2005, or 2001, and so on and so on.

You get the idea.

If we’re worried about the costs to the US Treasury, maybe we go a step further and make those who paid less than the baseline amount pay a tax. How would we figure that out?

When I floated the idea for my reasonable college expense index on Twitter, Lara Schwartz, professor at the American University School of Public Affairs and director of the Project on Civil Discourse, suggested that a good date to index to might be the average date of graduation for our elected representatives.

This would be 1980 for our senators and 1986 for members of the House. Let’s split the difference and go with Class of 1983.

If you went to a public four-year university as an in-state student from 1979 to 1983, on average, your total tuition would have been just under $4,000, under half of what I would pay a decade or so later.

This means if we pegged the reasonable college expense index to 1983 dollars, as a 1992 graduate, I would be owed a little under $3,000 as a rebate, just to make sure my college costs were “fair” as compared to someone who graduated college in 1983. That 2012 graduate would be looking at a better than $9,000 bonus.

But John, you’re thinking, wouldn’t this result in a massive wealth transfer from older people to younger people, as an acknowledgment that the mechanism for providing economic opportunity through education has gradually eroded until it has almost completely broken?

In reality, this understates the advantage of those who went to college earlier have had, given the extra years they had to build wealth on top of their lower costs. Those without debt were allowed to begin building wealth much earlier and more quickly, as seen in our pandemic housing market, where those who already own homes have seen an increase in aggregate wealth of over $6 trillion since 2020, providing them increased opportunities to pay for their children’s college educations or start businesses or even buy more property that they turn around and rent to those who cannot afford to buy.

Canceling student loan debt for the people who have been shut out of this bonanza seems pretty fair to me, but what do I know.


[1] I talk about this in some detail in the book, but essentially we stop using public money to subsidize wealthy institutions and give that money to the kinds of schools that the vast majority of student attendees.

[2] Even at that relatively affordable time, tuition was increasing much faster than inflation, increasing over 23 percent from 1988 to 1992. A single year’s in-state tuition at Illinois is now more than double this amount.

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