Analyzing the Benefits, Harms, and Public Good
Last month President Biden announced that he will be using executive action to implement a broad student loan forgiveness initiative that will wipe out $10,000 in federal student loan debt for borrowers earning less than $125,000 per year (or $250,000 per year if they are married). Biden announced that he will be using executive action to implement a broad student loan forgiveness initiative that will wipe out $10,000 in federal student loan debt for borrowers earning less than $125,000 per year (or $250,000 per year if they are married). No comparable student debt cancellation program has ever been enacted before.
Consider that $10,000 in student loan forgiveness for most borrowers would eliminate the student debt for 16 million borrowers, according to the Center for American Progress. Nearly one in three student loan borrowers would have their student debt completely wiped out through this initiative.
Biden’s announcement also includes additional relief for Pell Grant recipients. Pell Grants are a form of federal financial aid, issued to lower-income students, that does not have to be repaid. Federal student loan borrowers who earn below $125,000 per year (or $250,000 per year if they are married) and who received Pell Grants as part of their financial aid package could get up to $20,000 in federal student loan forgiveness.
It's worth noting that the U.S. Department of Education has extended the current freeze on student loan debt repayment — also referred to as the administrative forbearance — on repayment, interest and default for federal student loans until December. 31, 2022.
I blog about ethical issues all the time and student loan forgiveness surely us one of these issues. It’s complicated, but I feel obligated to make some points about the benefits and harms of the forgiveness, as well as the public good—a utilitarian approach for the ethical analysis. But first, here are the ethical issues in broad terms.
Let’s consider the following ethical issues in analyzing student debt forgiveness:
- The increase in the national debt by forgiving student debt (i.e., much of it is held by government entities) is unsustainable.
- The mounting debt forgiven disproportionately harms those graduates who have already paid off their debt.
- Are we sending a message that it’s all right to get in deeper debt than one can afford because someone or some institution will pick up the pieces?
- Will the debt forgiveness program incentivize colleges and universities to admit more students so they can hire more faculty, open more centers, and start new programs with student fees?
- Don’t students have a personal responsibility to pay off their debt given that they knew it was coming when they enrolled in college?
These concerns should be balanced by the fact that the debt forgiveness program may incentivize those who might not otherwise have a desire to go to college to enroll. That’s a good thing. A well-educated public is crucial to the advancement of learning in the U.S. Those so educated will become more informed voters, a plus for our democracy. It will also enable America to remain technologically competitive with other countries, especially China.
The White House issued a chart breaking down the distribution of total dollars forgiven by three income groups. It shows that 87% of the money would go to those earning less than $75,000 a year. None would flow to individuals earning more than $125,000.
Leveraging this data, President Biden said the plan would target poor and middle-class people — “families who need it the most.”
This is true in at least two senses: The policy sets an income cap for forgiveness ensuring the wealthiest households can’t participate. And recipients of Pell Grants, a type of financial aid for lower-income families, qualify for double the maximum relief, or $20,000, relative to other borrowers.
There is no doubt that the numbers might be “fudged” a bit. An analysis by CNBC suggests that the Biden administration felt an analysis of individuals would be more accurate than households since Department of Education data doesn’t indicate if a borrower is married, according to a White House official.
But the White House analysis measures income per individual, rather than at the household level. Let’s say each spouse in a married couple earns $70,000 a year — they’d have $140,000 of joint household income but would count among the group earning below $75,000 in the White House income analysis.
Most actions have loopholes, and this may be one. However, on balance student debt forgiveness helps those most in need and benefits society because it creates access to a college education where the financial barriers previously may have closed that off for low-income students.
Someone must pay for the student debt relief. The government can only “force” its executive action on federally provided loans. Federal student loans make up most of the American education debt—about 92% of all outstanding student loans is federal debt. The federal student loan portfolio currently totals more than $1.6 trillion, owed by about 43 million borrowers. This means our tax dollars will be used for debt forgiveness.
In July 2022, the public debt of the U.S. was around 30.6 trillion U.S. dollars, around 2.17 trillion more than a year earlier, when it was around 28.43 trillion U.S. dollars. This is unsustainable and the student loan forgiveness program just adds fuel to the fire. There are other issues as follows.
The problem, as I see it, is “moral hazard.” Moral hazard occurs when one party knows they can get away without paying debt off by either transferring the obligation to another party or the debt is just wiped out. Under either approach, it seems as though the class of 2022 and going forward can rest assured that their student debt would be wiped out fully or in large part assuming they go to a public college or university.
I do support the idea of free tuition for community college. In most states the tuition for these institutions is already quite low so forgiving the rest of the debt doesn’t cost the public as much. Moreover, it helps to create marketable skills that enable a student to get a job after graduation without completing years three and four at an institution of higher learning.
The Fairness Issue
I’m deeply concerned about the idea of wiping out student debt in any amount. Sure, these amounts have become astronomical and create a heavy burden on millennials and generation Z, and that’s troubling. It could affect economic growth going forward. However, there is a fairness issue that for me, as an ethicist, creates discomfort. Is it fair that so many Americans paid off their student loans in full but do not benefit from the initiative to reduce that debt?
Consider this: Is it fair to Sally and Joe who incurred $200,000 in debt, paid it off, and now see other students the recipient of loan forgiveness? Maybe Sally and Joe put off buying their first house to save enough to pay off the debt? There is no way this is fair to them, in my opinion.
Although most Americans have never had a student loan and fewer than one in five now have one, the issue directly touches a wide group of the public. Among registered voters, 15 percent will have their loans reduced or completely forgiven, 25 percent have family members eligible to participate in the plan, and 18 percent have close friends in this situation.
A majority of voters believe that there were compelling reasons for the president to act. Two thirds say that student loan debt is a serious problem, and more than six in 10 say that it is preventing young people from buying homes and having children. Sixty-three percent see student loan debt relief as lightening financial burdens, especially on low-income households.
Every survey has shown majority but not overwhelming support for President Biden’s plan to reduce the burden of student loan debt. The two most recent polls, Quinnipiac and The Economist/YouGov, put support among registered voters at 51 percent and 52 percent, respectively. Support among Hispanic and Black voters was substantially stronger, as was support among voters under age 50. Among swing voters, moderate and suburban voters gave the plan majority support while Independents were about evenly divided. Women are significantly more favorable to the plan than men, and the gender gap is especially large among white Americans.
Lost in all the discussion about student debt relief is the fact that most university dedicated centers for special activities could be combined into academic departments without the need for a new bureaucracy. The staffing of such centers is out of control. Universities are to blame to the extent there is a bloated administration. How does this occur? I believe there are at least three examples: (1) overpaid university executives; (2) standalone “centers” to support faculty activities; and (3) out of control student fees. In the interest of brevity, I’ll address the last two.
Centers of Learning/Service
Having taught full time at six different universities, I’m always amazed how many “centers” are established to support faculty activities that should be handled by the academic unit itself. For example, the College of Business, the College of Engineering, and the College of Math and Science could sponsor associated activities without setting up separate administrative centers that requires a head of the unit, staff, and administrative support for faculty. Here are few examples of centers, which represent public colleges and universities. These lead to tuition fee increases in one form or another.
- Center for Teaching, Learning, and Technology
- Center for Applications in Biotechnology
- Center for Excellence in STEM Education
- Center for Expressive Technologies
Here are a few others that could be combined with existing departments or activities, as noted.
- Center for Service in Action (Integrate into “Community Engagement” Programs)
- Center for Leadership and Service (Integrate into “Community Engagement” Programs)
- Health Counseling and Wellness Center (Department of Public Health).
- Academic Success Coaching (Department of Education).
- Parents Programs (This is not needed).
Public colleges and universities have turned to raising student “fees” for designated services that should be considered part of their tuition. In one public institution, students pay $3,718 each year on fees, which is more than one-half the annual tuition. Why are fees so high? It’s attributable to the fact that raising student tuition is more difficult than raising fees because of the greater scrutiny given the former by state legislatures. Here are a few examples of those fees:
- Campus academic fee
- Associated students’ fee
- Instructionally related activities fee
- Health service fee
- Health facility fee
- Student ID card fee
- University union fee
- Student success fee
- Professional program fee.
This is just the tip of the iceberg.
There is no easy fix for the high level of student debt. Yes, something should be done about it. However, let’s remember that students decided to incur the debt to go to college and a case can be made that they have a personal responsibility to pay it back just as they would a house that is overpriced. On the other hand, perhaps a free (public) education is a student ‘right’, but that is for another discussion.
Posted by Steven Mintz, aka Ethics Sage, on September 26, 2022. Steve has published a book titled Beyond Happiness and Meaning that explains the ethics of wellness, public responsibility, and workplace ethics. Visit Steve’s website to purchase his book, which is also on sale at on Amazon. Follow him on Facebook and “Like” his page.