College Student-Debt-Relief Jubilee?
Catholic economists weigh merits of Biden’s plan.
Catholic economists agree: The Church’s call for society to exercise a preferential option for the poor and vulnerable can include the forgiveness of debts; additionally, some who are saddled with crushing student loans in the U.S. certainly qualify as “poor and vulnerable.”
But what economists formed in the Church’s social teaching can’t agree on is whether President Joe Biden’s plan to forgive at least a portion of the federal student loan debt of 43 million people, announced last week by the White House, is an instance of the Church’s social teaching in action, or a misapplication of it.
Mary Hirschfield, a dual economist and theologian at the University of Notre Dame, takes the latter view and described Biden’s debt-relief plan to the Register as “a bad idea.”
“On the worst reading of it, it’s basically plundering society in order to feather the nest of people who already have it made,” said Hirschfield, author of Aquinas and the Market: Toward a More Humane Economy.
Hirschfield said she might have drawn a different conclusion if the plan had been more focused, for instance, on the debts of those from disadvantaged communities or first-generation collegians who took a risk by attending college but dropped out before earning a degree.
She also said the plan would have been more feasible if it capped relief off with graduates who have failed to secure a job at the median income level, which is about $65,000 per household.
But with up to $20,000 of loan forgiveness for those making as much as $125,000 — a figure in the fifth percentile of all income earners — or couples making $250,000, Hirschfield said she fails to see how the Biden initiative can be considered an exercise of the Church’s preferential option for the poor and vulnerable. In fact, she contends the policy will benefit members of the upper middle class at the expense of lower classes, contributing to “this calamitous widening of the abyss between the people who have been to college and the people who haven’t.”
Estimates project that the new policy will cost taxpayers an average of $2,000, including an increased tax burden of $1,040 for those with adjusted gross incomes between $50,000-$75,000.
“I can imagine a much more tailored policy in this direction doing some real good, but this is not it,” Hirschfield told the Register. “It’s not close to being it.”
Relief as ‘Core Component’
Catholic economist Anthony Annett supports Biden’s student-loan relief plan, but said criticisms that the initiative isn’t giving any relief to the two-thirds of Americans who didn’t attend college are “valid.” However, Annett has less patience for arguments that say it’s “unfair” that some are having loans forgiven, seemingly at the expense of those who either already paid them off or saved for college instead of taking on debt. He describes this perspective as “elder-brother syndrome,” a reference to the older sibling in the Parable of the Prodigal Son, who couldn’t stand that his father had forgiven his errant brother and threw a feast for him.
This line of reasoning, Annett told the Register, fails to account for that fact that “relief is a core component of how [the Church] thinks about justice,” an argument the economist has made in his book Cathonomics and, more recently, in the pages of Church Life Journal.
As precedent, Annett points to Hebrew Scriptures’ description of the cycle of “sabbatical years” — when fields were left untilled so the poor could eat from them — and the “jubilee year” — when debts were forgiven and land that had been sold under duress was returned to its original owner.
In more recent times, the Church has called for the forgiveness of debts largely in the context of poor, developing nations owing money to richer countries or international bodies. In fact, in the Great Jubilee of the Year 2000, Pope St. John Paul II urged Christians to “raise their voice on behalf of all the poor of the world” by proposing “reducing substantially, if not canceling outright, the international debt which seriously threatens the future of many nations.”
Annett contended that these kinds of cases illustrate that, from the Church’s perspective, the common good and the welfare of the poor are the ultimate criteria governing the discharge of debts, not an unnecessarily rigid sense of fulfilling financial obligations. In fact, he says that a major shortcoming of President Barack Obama’s tenure was the failure to offer meaningful debt relief to homeowners during the 2009 debt crisis, while the Obama administration “was happy to bail out Wall Street and larger financial institutions.”
And while Catholic economists like Hirschfield might criticize the Biden debt-relief policy because it may benefit those who are already well-off financially, Annett’s focus is on the opposite side of the equation. While admittedly being “agnostic” about the $125,000 individual cap, he argued that the majority of people who will benefit from the student-debt-relief proposal are not the rich, but the middle and lower-middle classes, “who are suffering from a millstone of debt.” That’s consistent with how the White House is portraying the move.
“Under my student debt relief plan, almost 90% of the benefit will go to folks making less than $75,000 a year,” said Biden via Twitter. The president’s plan will also cap monthly payments for undergraduate loans at 5% of the payer’s discretionary income, a reduction by half. In its official release, the Biden administration has also drawn attention to the debilitating effects of high monthly payments and lengthy balances brought on by significant increases in the cost of college in recent decades coupled with reduced earning power. Saving to buy a home, prepare for retirement or start a small business are all hampered by significant college loans; and, according to the White House, 16% of all borrowers are in default. “There’s a lot of people suffering and a lot of people who need relief,” said Annett.
Making the Problem Worse?
Catherine Pakaluk, a Catholic University of America economist with a specialty in social research, agreed that the cost of college is out of control, and the amount of loans students are taking out is morally compromised.
“I think student debt is one of the most unjust things we’re doing to young people,” she told the Register, noting how much of a barrier to family formation significant college loans can be.
“So I do think there is a good argument for coming up with creative solutions.”
However, in addition to criticizing Biden’s debt-relief plan for failing to target those who are “the most economically vulnerable in society,” she contended that the initiative won’t contribute toward a long-term solution to the student-debt crisis. In fact, she thinks it will make things worse.
Pakaluk argued that Biden’s policy creates a “moral hazard,” or a scenario in which more people are willing to take out significant loans to fund an expensive, often private, college education because they can count on the government to forgive them if they struggle paying the loans back.
But even more significantly, Pakaluk told the Register, the plan is likely to do nothing to stop the increasing accumulation of student-loan debt because it fails to rein in “the single biggest culprit”: federal loan programs.
On this account, the availability of federal aid actually drives up the cost of education — and therefore the amount of debt taken on — because colleges simply factor the available government aid into their pricing.
A 2017 study by the Federal Reserve Bank of New York, for instance, found that the expansion of federal aid since the 1980s was associated with a 60 cents on the dollar increase in the price of tuition. Overall, typical college costs have increased 169% since 1980, while pay for young workers has only increased by 19%, according to a Georgetown University study. Pakaluk said loan forgiveness would have made sense if the Biden administration had pursued a more comprehensive plan, recognizing the current federal-aid program as a “bad system” and identifying those who have taken on significant college debt as a “class of people who’ve been victimized by a policy program that over decades has ratcheted up tuition to a point where it’s crazy.”
“That wouldn’t be a moral-hazard case,” she explained, “because we would have closed down the possibilities of something similar happening in the future.” Instead, the Biden administration has expanded the maximum annual value of Pell Grants by $2,175 and has broadened the pool eligible to receive them.
Notre Dame’s Hirschfield agreed that the ever-inflating cost of education is “not sustainable” and that policymakers and economists need to pursue options that will cause college administrations to stop jacking up prices. “And maybe one way to do that is to starve colleges of funds,” she said, referring to federal-aid programs.
Hirschfield also insisted that another dimension needs to be part of the solution to college costs and student-loan debt:
“And that’s to realize that people who don’t have a college education are nonetheless doing real and valuable work that sustains our world and to give them more recognition for it.”
Hirschfield maintained that social recognition of blue-collar work is needed to counteract how “we’ve been systematically devaluing” those fields of work, correcting the false notion that universal access to a college education is a panacea to inequality.
She also suggested that the government could subsidize not only vocational education programs, but even wages in certain no-degree-required fields of work to reward those who go into them.
Annett agreed that addressing widening gaps in inequality, especially between those with college degrees and those without, needs to be a priority.
As technology and globalization continue to advance, non-college graduates are falling behind, he said, a trend reflected in lower standards of living and health and higher rates of divorce and drug addiction.
“These people are suffering,” he said.
“As a society, we haven’t been very good at figuring out how to help these people, how to enshroud them in the common good.”
For his part, Annett advocated for stronger unions, as well as “the basic policies of social Christian democracy, which many countries in Europe have, but we don’t really have here.”
He noted that some provisions in Biden’s Inflation Reduction Act, such as caps on the cost of prescription drugs, will bring some relief to the working class.
He also suggested that Biden is continuing the “shift away from the neo-liberal consensus” that President Donald Trump began, which may address the stagnant wages and poor job prospects of workers without degrees.
He also doesn’t think Biden’s mass cancellation of student loans will prohibit the administration from now turning to focus on providing relief to the two-thirds of Americans who didn’t go to college, in part because he doesn’t believe the cost of the new policy — $200 billion — is too significant when placed within the context of a U.S. economy that generates more than $20 trillion.
“You can do both,” he said. “You can walk and chew gum at the same time.”
Economists like Pakaluk are less convinced in the government’s ability to coordinate multiple interventions successfully, especially considering her position that federal over-involvement in the form of readily available college loans has been a major contributor to the student-debt crisis.
The differing viewpoints of these Catholic economists on Biden’s student-debt-relief plan underscores that while the policy may bring momentary relief to some, its long-term impact on the common good will remain unclear.