More analysis in the student loan forgiveness debate

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Brookings nonresident senior fellow Adam Looney, also a professor of finance at the University of Utah and executive director of the Marriner S. Eccles Institute for Economics and Quantitative Analysis, spoke in mid-January and again today. today, in response to questions from readers. , on the cancellation of student loans.

In the first article, Looney argued that “usual measures of financial wealth are, however, a misleading indicator of the economic status of student borrowers.” For example, someone who went to medical school is probably in debt to the tune of $200,000 to $250,000. Having an MD after your name means higher income after school and for years to come. Even people with a bachelor’s degree will earn more overall than someone without, as he notes in the second article:

People invest in a college, graduate, or professional degree because it helps them earn more, avoid unemployment, and enjoy a better quality of life. For young Americans between the ages of 25 and 34, the salary increase of a college graduate compared to someone without a degree is at an all-time high (as I discuss more below).

Indeed, the labor market value of post-secondary degrees is one of the main reasons Americans line up for good quality colleges. Harvard collects about $1.9 billion each year in tuition fees, mostly from high-income families. These parents could have passed that money on to their children, but instead they bought something far more valuable.

A car is an expensive purchase, but a person buys it to be able to travel, including to and from work. There is interest to pay on top of the principal, but millions do so without suggesting they should be relieved of the expense.

Are there people put in a difficult position because they may need a car but don’t earn enough to pay for something relatively new and reliable? Absoutely. The same goes for student debt.

The problem with many analyzes – and Looney seems to be making the same point in a different way – is that they focus on average or median experiences – a general look at how debt and the economic future affect a person. representative and their experiences.

I took this into account in my analysis by grouping individuals based not only on race and education level, but also on income: some students (or high school graduates or tradespersons) have careers at income below average, and some higher. As a result, some people are assumed to have gained very little from their college careers (other than debt), but others have earned a great deal. (Indeed, the highest-earning high school graduates earn more than some of the lowest-earning, better-educated groups.) But, on average, most people with a college degree or higher earn significantly more than people without a university degree. University graduates are high in the income and wealth distribution, as are student borrowers.

To appeal to such generalizations by focusing on a mean or median is crude and mathematically inaccurate. Bureau of Labor Statistics data on earnings for physicians and surgeons show median salaries of $208,000 per year. But the average salary for pediatricians is $184,570, while that for anesthesiologists is $272,1440. Quite scattered, depending on seniority, type of practice and geographical area.

Next, look at the income of many PhDs. who, enticed to join the university ranks, only learn of the dreary existence and the abyssal salary of the assistant, no matter how many degrees they have accumulated and at what price.

Furthermore, Looney notes that not all colleges are the same and that “many more low-income students and non-traditional students attend college without the same resources as ‘traditional’ students.”

Which is really the main point. Eliminating all student debt, when most of it is held by people from wealthier families because it is precisely these people who have dominated college attendance, would be a huge upward wealth transfer. In this sense, it is similar to traditional income tax deductions for owning a home, in which most of the benefits have gone to the wealthiest because relatively few people are able to gain an advantage by itemizing their deductions.

As Looney put it, “cancelling all student debt would be a transfer greater than the amounts the nation has spent over the past 20 years on unemployment insurance, the income tax credit won or food stamps”. And the bulk of the benefits would go to those with higher incomes, who also happen to be whiter, than these other programs.

There are no easy answers, including “eliminate all student debt,” when the outcome is pretty much the same socioeconomically. Maybe argue for more targeted programs that really help people who need it. Public policy is complicated and, as the country has seen time and time again, it is all too easy to draw unintended consequences.

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