The Two Big Deceptions in the Student Loan Debate
Crocodile tears for young lawyers
One thing I’ve learned is that you can find a research paper to support just about anything. I googled “immigrants commit more crime” and found this paper supporting that thesis from the Center for Immigration Studies, even though it’s pretty well established that the opposite is true. I searched “Bush tax cuts increased revenue” and had to scroll past dozens of studies saying “no they didn’t”, but I eventually found this paper from the Hoover Institute that takes the affirmative position. I did manage to find the outer bounds of this theory — searches for “women find model train enthusiasts sexy” and “crystal meth is a great source of fiber” came up empty — but for most topics under the sun, you can find some crank spouting nonsense due to funding from some presumably-even-larger crank.
Most progressives who want to forgive most or all student loans argue that doing so would benefit the poor and middle class more than the wealthy. And of course they argue that; it would be weird for progressives to support a deeply regressive policy. At least, it would be weird if you don’t think that a sizable chunk of the progressive movement is a borderline cult that lost radio contact with reality some time in the mid-2010s. Though I think I’ve been very clear that I do think that.
To my reading, the evidence is overwhelming that student debt forgiveness with no means testing and no cap on how much is forgiven would mostly benefit the well-off. But some researchers and advocates are parsing data in ways that say otherwise; I consider what they’re doing to be the social science equivalent of standing on your head, squinting, and looking at data reflected in seven mirrors in an attempt to see what you want to see. The effect is an intellectual smoke screen that tries to convince people that something false is true. There are several techniques that they use, but here are the big two.
Looking at the number of debt holders instead of the amount of debt held
Who owns Google? I do! At least: I do according to logic that looks at the number of people who hold a thing instead of the amount that they hold. My wife and I hold a couple of shares, so there’s me, her, Larry Page, Sergey Brin — shareholders all, with the Maurer household on equal footing with two entrepreneurs. Of course, a cynic could argue that the few shares the Maurers hold don’t give us equivalent status as Page and Brin, who hold tens of millions of shares. To which I would say: How dare you disparage my role in building this great company, I will make this slander a point of order at the next board meeting.
A large number of people hold a small to medium amount of student debt. Many of these people didn’t receive degrees, which is the subtext behind a commonly-cited statistic: Nearly 40 percent of student loan holders didn’t graduate. This factoid has been repeated by Elizabeth Warren, Representative Alma Adams, and New York Times reporter Stacey Crowley. The number is nominally true, but it distorts reality a bit. Those borrowers owe substantially less on average; that “nearly 40 percent” (it’s 38.6) of borrowers owe 23 percent of debt. Because a large number of people owe a small amount of money, debt relief capped at $10,000 — which most progressives fervently oppose — would completely wipe out debt for 48 percent of people in the lowest income quintile.
Many mainstream media student debt stories lead with the number of Americans who owe money. And it’s a big number: 44.7 million, about 13 percent of Americans. I’d like to point out that about 13 percent of Americans holding student debt means that about 87 percent of Americans don’t give a fat frog’s ass about student debt, so the masses might not quite be ready to storm the Bastille demanding student debt relief, but I digress. Focusing on the number of people who hold debt disguises the fact that a small number of people take out extremely large loans, and many of those people are highly paid professionals. In fact, about half of student debt is held by people who went to graduate school, even though they’re only a quarter of borrowers.
You can probably already see the reality that progressives are distorting: Some people take out obscenely large loans to go to graduate school. They’re a big part of the student loan picture, but virtually nonexistent in the progressive narrative. And the second distortion is an even more aggressive attempt to dress white-collar professionals in pauper’s clothing.
Looking at wealth instead of income
Remember when Ann Romney regaled us with a story of the hardscrabble days she and Mitt shared in their early 20s? It was at the 2012 Republican National Convention, and it went like this:
“We got married and moved into a basement apartment. We walked to class together, shared the housekeeping, and ate a lot of pasta and tuna fish. Our desk was a door propped up on sawhorses. Our dining room table was a fold down ironing board in the kitchen.”
Those poor, underprivileged, at-risk youth! We really should have elected Mitt president just to say “sorry you had to go through that”. If I had a time machine, my first move wouldn’t be to kill Hitler or save JFK: I’d go to the late ‘60s and bring a decent kitchen table to those poor, scrappy Romney kids.
Obviously, the Romneys weren’t actually poor; they just weren’t rich yet. Mitt’s dad was a two-term governor of Michigan, and Mitt was aggressively courted by a management consulting firm from a young age. He eventually got a JD-MBA from Harvard and — guess what? — got really rich.
Many people with advanced degrees make an investment in their youth that will pay off later on. They’re not underprivileged, but the data can make them look that way. Here’s the amount of student debt owed by wealth quintile:
That really makes it look like student debt is mostly held by the poor! But several things are going on here, the first being that debt is overwhelmingly held by young people:
I used to be part of this data set: In my mid-20s, I had a graduate degree, some student loans, and my most valuable asset was my XBox. I also had a Hyundai that was worth maybe $200, and that was mostly the tires. My point being: Of course I didn’t have any wealth, I was 25 and hadn’t made any money or bought anything yet. But it would be silly to think of me as “poor”; I eventually made some money and bought a better XBox, and I’m not on pace to be the sad bastard on that graph who’s still paying off loans in his 70s.
There’s also a difference between “wealth” and “assets”. Wealth is assets minus liabilities, and a student loan is a big, fat liability, so student loan holders aren’t going to do well on the wealth metric almost by definition. It’s also true that many degree holders will soon make good money and accumulate assets — the Romney’s will eventually buy a table — but they haven’t done that yet. Even so, the picture looks drastically different when you look at assets alone:
And there’s still more going on here. Because recent graduates actually do have an asset: their degree (and usually also an XBox). Adam Looney of the Brookings Institute argues (persuasively, IMHO) that an accurate accounting of graduates’ wealth would include the value of their degree. This makes sense: When you get a loan for a house, the value of the house goes in your “assets” column — similar consideration should apply to college degrees. Looney developed a metric that factors this in, and it dramatically changes the picture:
Looney sort of gave away my next point with the third set of bars in that chart — he inexplicably didn’t consult with me before publishing his study — but pretend that you haven’t seen the grey bars and then look at the grey bars. Looking at income — which we should, because some loan holders have landed a high-paying job — shows that student debt is mostly held by the well-off. By Looney’s analysis, ranked by income, the richest 20 percent hold 35 percent of debt, and the second-richest 20 percent hold 33 percent.1 The poorest 20 percent hold only two percent. An income-based look at student debt shows that the well-off hold most student loans, and a wealth-based approach that goes beyond rudimentary calculations of wealth paints the same picture. Only when you look at wealth divorced from any context does across-the-board relief look progressive.
There are times in economics when it makes sense to look at wealth instead of income. But this isn’t one of those times. Recent graduates — who hold most debt — are in a weird moment in their lives that causes them to score unusually low on the wealth metric. But a young doctor or lawyer isn’t poor, and they don’t need our help. When delivering that kitchen table to 1968 Ann Romney, Time-Traveling Me would have told her: “Don’t panic — you’re going to be fine.”
The fact that many progressives support a highly regressive policy would be confusing if we didn’t know how we got here. But we do know how we got here: Bernie Sanders ran for president in 2016 promising free college for all. He won the support of many young people and did surprisingly well. Bernie either sparked or capitalized on a trend in progressive circles to rally around pithy, absolutist slogans — “Medicare for all”, “abolish ICE”, “defund the police” — of which “cancel student debt” was one. By 2020, both Sanders and Elizabeth Warren had made debt cancellation a centerpiece of their presidential campaigns. Also, at some point progressives convinced themselves that this is a race issue, because of course they did.
This puts progressives in the awkward position of advocating a policy that mostly benefits highly educated, upwardly mobile, and, yes, mostly white2 people. It is also possible that somebody — or even literally everybody — noticed that progressives tend to be highly educated, upwardly mobile, and, yes, mostly white. Must be a coincidence!
Given this context, of course progressives are desperate to muddle the debate. Their staunch resistance to any caps3 or means testing — which would be inelegant but would help target relief to the poor and middle class — makes it completely obvious that the real end game is to hand a big pile of cash to the type of person who votes for Bernie Sanders and Elizabeth Warren. That’s a pretty bad look, so it makes sense that their main tactic is to basically throw a smoke bomb on the ground and hope that people get confused. This tactic will probably succeed in giving progressives the psychological cover they need to convince themselves that they’re a champion for the poor while they carry water for the rich, but that doesn’t mean that the rest of us need to be fooled.
It annoys me to have to point this out, but Looney actually makes a choice here that I don’t really like: His calculations are based on the financial value of of loans instead of their dollar value. Meaning: If I hold $1,000 of debt, and it’s calculated that there’s a 75 percent chance that someone with my financial profile will pay that debt back, then my debt is valued at $750. This tends to lessen the value of debt held by poorer people. To my eternal annoyance, a paper that I absolutely hate — this one from the Roosevelt Institute — calls out this decision. On that one point only, I prefer the Roosevelt Institute’s methods to Looney’s, though it’s debatable which method paints a more accurate picture of financial reality. Of course, even if that one facet of Looney’s calculations was changed, the overall picture would remain basically the same.
Looney actually dissects the data using a few different methods here, and the story is always the same: A majority of student debt is held by people in the top two income quintiles.
The fact that debt is disproportionately held by Black people does not change the fact that a majority of debt is held by white people and that a majority of debt holders are white.
Elizabeth Warren has agreed to a $50,000 cap, which most consider high, and many progressives advocate for no cap.