Many economists agree that Biden's student loan forgiveness plan is a bad idea : The Indicator from Planet Money Biden is canceling student loans for millions of Americans. Love it or hate it, one thing is for sure – many economists from the left and the right think that this plan is a not-so-good idea...

Economists take on student loan forgiveness

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And I'm Darian Woods. The Biden administration plan to cancel billions of dollars of student debt is controversial. A lot of people love it, particularly on the progressive wing of the Democratic Party. They say it will reduce inequality and it'll take a huge amount of pressure off less well-off creditors, many of whom are disproportionately people of color.

HIRSCH: And of course, a lot of other people hate it.

WOODS: It's America, of course.

HIRSCH: Fifty-fifty - you can actually count pretty much the entire Republican Party and everyone who votes for them on this side and judging by the comment section of the New York Times and the Washington Post, a lot of people who claim to have voted Democratic in the past but are now disgusted by what they see as a wasteful handout.

WOODS: These people make the point that they had to work their tails off to pay off their student loans. Why should these borrowers get a bailout? What's more, they say that this debt forgiveness plan will be paid by taxpayers, many of whom didn't go to college themselves.

HIRSCH: A lot of disagreement there. But there is one sector of the populace where there is very little disagreement on this issue, regardless of political inclination - economists. Academic economists, think tanks and universities, members of previous administrations, both Democratic and Republican, are in almost universal harmony on the Biden student loan forgiveness plan. They think that it is a bad idea.


WOODS: So is this a rare moment of bipartisan agreement?

HIRSCH: I believe it is.

WOODS: Only in economics - that is coming up after the break.


HIRSCH: The Biden student debt forgiveness plan will cost the government anywhere from 300 billion to half a trillion dollars. And just to give you a sense of the scale of that, the annual budget of the entire Department of Education was $73 billion in 2020.

WOODS: There are some economists who support the plan and some who say it's better than nothing. But economists generally do not like student loan debt relief unless it is highly targeted to benefit the people who really need it.

HIRSCH: Yeah, in fact, a survey done back in 2020 by the University of Chicago Booth School found nearly three-quarters of economists weren't big fans of the idea of wholesale forgiveness of student debt. The rest said they were uncertain about it. But there's no uncertainty among the two economists that we're speaking with about the Biden plan today.

BETH AKERS: I am Beth Akers, a senior fellow at the American Enterprise Institute.

SANDY BAUM: And I'm Sandy Baum, a non-resident senior fellow at the Urban Institute. We like talking to each other.

AKERS: Yes, thank you.

BAUM: So that's good.

AKERS: Yeah, I was thrilled when you said Sandy would be on the other end as well, so...

HIRSCH: Well, she mentioned you when I spoke to her this morning. I was like, oh, let me just see if she's available, so it really worked out, so I'm so...

Sandy and Beth are both senior fellows at economic think tanks, and they've both published books about higher education. And while the Urban Institute, where Sandy works, tends to be more progressive and the American Enterprise Institute, where Beth works, tends to lean conservative, both economists are in the against camp when it comes to the Biden plan.

BAUM: I probably in general favor a lot more progressive policies than Beth does, but it doesn't matter. We think pretty much the same thing, I think, in our analysis as economists of the student debt situation.

WOODS: At the top of most economists' lists of issues with this plan is that it's somewhat regressive. That's never a popular word in their field. That means it tends to benefit people who are well-off more than those with more limited means. Beth from the conservative-leaning AEI notes that by giving people with a college education a break, we're leaving out the most needy in the economy.

AKERS: Some people who have gone to college and borrowed are not in great circumstances, but generally, people with a college education are amongst the more well-off in our economy. We're neglecting the 4 out of 5 Americans who don't have any student debt at all.

BAUM: Yeah, I think that, you know, if you said, let's send a check for $10,000 over to every household with an income below 125- or $250,000, but by the way, if you didn't go to college, sorry, you don't get a check, people wouldn't go for that, right? And that's basically what we're doing.

WOODS: That really throws the thing on its head, doesn't it, Paddy?

HIRSCH: It kind of does, yes.

WOODS: Another problem that most economists have with this plan is that it sets up expectations that could make a bad situation even worse - that is, super high college costs.

HIRSCH: We asked Beth from AEI what she thought about this.

AKERS: I want to answer that, but my dog is barking because the UPS man just came.

HIRSCH: Competing with the dog, she told us economists generally believe that people and institutions respond to incentives that are in front of them.

AKERS: If we're introducing the idea that we may be canceling more student loans in the future, we're encouraging people to spend more, to borrow more, increasing demand for college and potentially causing further tuition inflation, which is a core concern that I have.

HIRSCH: So we're basically introducing moral hazard into the education system now.

BAUM: Yeah. Is this a one-time thing? I've even seen people speculate that, you know, maybe they're going to promise, you know - somebody put out just estimates of how much would it cost if they do this every year. And I thought, wait a minute - every year, meaning take a loan today, and we promise you we'll forgive it a year from now? That is - you know, it's absurd. It may be...

HIRSCH: Now, I know what some of you might be thinking here. Sandy and Beth are both economists, and I think it would be unkind to call them cheap or even coldly rational. But they are naturally laser focused on the bottom line. So maybe you think they're not really thinking about what's best for people. Beth from AEI says that even though she leans conservative, she actually supports student debt forgiveness so long as it's provided through a comprehensive safety net.

AKERS: Higher education, which serves as the primary mechanism for social mobility - and so we need that mechanism to work really well. And if it doesn't, there needs to be a safety valve or, you know, a way for students to get out from under these unaffordable loans.

WOODS: And it's not like this is a controversial idea because something like this already exists. Sandy from the Urban Institute points out that we have a baseline safety net for borrowers of federal student loans in the U.S.

BAUM: I think people don't know that. In place is a system that says, if your income is very low, OK, don't make payments. And after 20 years, your undergraduate debt will be forgiven if you haven't been able to afford it. Then certainly we want to forgive the debt for people who were victims of fraud and abuse. So there need to be protections in place.

HIRSCH: The Biden plan has made some tweaks to the debt repayment system, but both Sandy and Beth agree that those changes don't get to the root cause of the issue. Higher education in the U.S. is a broken system that's been allowed to pretty much run wild.

AKERS: My biggest concern is that we're continuing to hand out new loans that we fully anticipate will be unaffordable. The system that is the gatekeeper for federal student loans, to my mind, is really not strong enough. We're not preventing students who go to institutions with really a poor track record of placing their graduates into good-paying jobs - we're not stopping them from taking on new loans. So until we do that, I think we're going to be continuing to bleed out through student loans, as we have been.

BAUM: Yeah, I totally agree with that. I mean, we need a better regulatory system, and there is a lot of controversy about how that should be designed. But doing something to say, if you enroll students who cannot repay their loans, who don't get jobs, who don't have earnings afterwards, sorry, but we're not in the future going to allow students to borrow to - or to get Pell Grants to go to your institutions, that's a very, very important step for us.

AKERS: And my hope is that this step today will make Republicans mad enough that they will come to the table in Congress to work with Democrats to make something happen on that systemic reform that's really needed.


HIRSCH: Wow, bipartisanship, from your mouth to God's ears, Beth. Thank you both so much. I really appreciate your time.

AKERS: Thank you.

BAUM: OK, thanks.

HIRSCH: Bye-bye now.


WOODS: This episode of THE INDICATOR was produced by Jamila Huxtable, who also fact-checked it, along with help from Nicky Ouellet. It was engineered by Robert Rodriguez. Viet Le is our senior producer. Kate Concannon edits the show. And THE INDICATOR is a production of NPR.


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