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OPINION

Canceling student debt will make things worse

A loan bailout would make college more expensive — among other problems.

Harvard Yard in 2020.Adam Glanzman/Bloomberg

For well over a year, President Biden has been under pressure from leading Democrats to issue an executive order cancelling $50,000 of debt for every American with an outstanding student loan. For most of that time he has stuck to the position he took as a candidate: He was open to $10,000 per borrower in debt relief but $50,000 was too much, and he wanted the legal authority for such a policy to come from Congress. In the meantime, Biden continued to extend the federal freeze on student loan repayments first put in place during the Trump administration. The latest extension, announced this month, lasts until Aug. 31.

But on Monday came hints that Biden has set aside his skepticism about the legality and wisdom of absolving tens of millions of borrowers’ debts. CBS News reported that the president told members of the Congressional Hispanic Caucus that he is considering various options to forgive a substantial swath of student loans. “I’m looking to do something on that, and I think you’re going to like what I do,” he said, according one lawmaker who attended the meeting. Later that day, White House press secretary Jen Psaki announced that Biden “would make a decision about any cancellation of student debt” before the end of August.

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The decision he should make is that he was right the first time.

For an unpopular Democratic president heading into a difficult midterm election, unilaterally canceling college debt may be good politics. It manifestly is not good policy. It represents moral hazard taken to an extreme, a recklessly expensive giveaway to a politically influential bloc of voters that will encourage more bad decisions in the future and exacerbate problems already at the crisis stage.

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How would canceling student debt make life in America worse? Let us count the ways.

1. It would be inflationary.

Large-scale student debt forgiveness will worsen inflation. That would be a problem at any time, but with the inflation rate now at a 40-year high and the economy teetering on the brink of recession, it should be unthinkable.

Prices soar when too many dollars are chasing too few goods. As the federal government massively boosted the money supply over the past two years, the purchasing power of the dollar dwindled. Freeing borrowers from their obligation to repay loans would amount to another gusher of funds. As it is, the current freeze on loan repayment — no one has had to pay a nickel toward their student debt since March 2020 — has been fueling the inflationary fires by about $5 billion each month. That’s a trivial effect compared with the impact of erasing borrowers’ liability altogether. As Adam Looney of the Brookings Institution has noted, “Forgiving all student debt would be a transfer larger than the amounts the nation has spent over the past 20 years on unemployment insurance, larger than the amount it has spent on the Earned Income Tax Credit, and larger than the amount it has spent on food stamps.” The result would be even more upward pressure on inflation.

2. It would worsen inequity.

Student debt is disproportionately an upper-middle-class phenomenon, and wiping college loans off the books would enrich the relatively well-off at the expense of the less fortunate. Only a minority of Americans have earned a college degree, and only a minority of them have gone on to graduate school. That minority-within-a-minority — which includes doctors, lawyers, bankers, scientists — owes half of all outstanding student debt. It is logical for graduate students to take out more loans, since their advanced degrees generally lead to much higher earnings over the course of their careers. Liquidating that debt leaves them even more affluent and compels the majority of Americans who never got to go to college to help pay the tab for many of those who did.

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And as if canceling student loans isn’t regressive enough, it is made even more unfair by the fact that the borrowers are more likely to have jobs. The unemployment rate among college graduates is 2 percent. For Americans with only a high school education, unemployment now stands at more than 5 percent. Why should the debts of the well-educated and well-employed be treated more indulgently than the financial burdens of those whose path in life hasn’t been so favored?

3. It would deepen cynicism.

Unearned debt forgiveness disseminates a corrosive message. It signals to Americans that they should regard their liabilities as someone else’s problem. It promotes the mindset that defaulting on debts is not shameful but understandable — and that government exists to bail out defaulters. It mocks those who behaved responsibly — the ones who saved more and worked second jobs to pay for college or who deferred higher education until they could afford it. And it’s a slap in the face to college graduates who faithfully repaid their loans.

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“I have over $17,000 in student-loan debt, and I didn’t go to graduate school because I knew that getting another degree would drown me in debt that I would never be able to surpass,” lamented Representative Alexandria Ocasio-Cortez in a December speech. “This is unacceptable.”

But her decision was the right one: If you can’t afford another degree — or a bigger house, or another car — you shouldn’t get one. What’s “unacceptable” is the lesson Ocasio-Cortez has apparently internalized: that she shouldn’t be expected to pay back the loan that got her through college and put her on the path to success (and a $174,000 congressional salary). No good can come from the entrenchment of such cynical thinking.

4. It would drive up the cost of college.

The more the government does to make higher education affordable, the more unaffordable it becomes. Since 1980, the cost of going to college has increased 1,200 percent — more than five times the overall inflation of 236 percent. Much of that is the unintended consequence of steadily rising federal student aid. As a tidal wave of public dollars has been channeled into grants and guaranteed loans, colleges have happily raised their prices to soak those dollars up. Federal aid gives schools every incentive to keep tuition costly. Why would they reduce their sticker price to a level that more families could afford, when doing so would mean kissing millions of government dollars goodbye?

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For Washington to now cancel hundreds of billions in unpaid student debt — while continuing to issue and guarantee even more college loans — would be to double down on this predatory cycle. Far from reforming the out-of-control loan program that has had such a catastrophic effect on college costs and student borrowing, it would turbocharge it.

If Biden is indeed gearing up to deliver radical student-debt relief, he is making a mistake. It may win votes for his party. But it will hurt more Americans than it helps and leave long-term economic and social harm in its wake.

Jeff Jacoby can be reached at jeff.jacoby@globe.com. Follow him on Twitter @jeff_jacoby. To subscribe to Arguable, his weekly newsletter, visit bitly.com/Arguable.