Cancelling Student Debt Is Unforgivable

I originally titled this op-ed “Whip Credential Inflation Now.” If you get the joke, you’re my preferred audience…

While student debt is at an all-time high of almost $1.8 trillion dollars, almost no student in American has made a payment in over two years.  Trump’s emergency COVID rules didn’t just cut the interest rate to 0%; it gave borrowers the option to stop payments altogether.  Almost 99% took the deal – and thanks to swift inflation, the debt burden is melting as we speak.  The relief is supposed to expire on August 31, but since it’s already been extended six times, it could easily go on for another year or two.  Still, many of Biden’s supporters are pressuring him to make this hiatus permanent by officially forgiving student debt.  Maybe just some of the debt.  Maybe all $1.8 trillion.

What would the consequences be?  On reflection, total student debt forgiveness is almost the same as “free college for all.”  The details differ, naturally.  Unlike free college, debt forgiveness is retroactive.  And a one-time cancellation of debts does not automatically imply that future borrowers will ultimately get the same deal.  The message, though, is deafening: You don’t have to pay for college in America.  Once we grasp the consequences of “free college for all,” we’ll know the approximate effects of a full-fledged student debt jubilee.

The most straightforward effect of free college would be a massive increase in college attendance and college completion.  A standard estimate is that cutting tuition by $1000 raises college completion by about 2 percentage-points.  While we shouldn’t take these numbers as gospel, “free college for all” could plausibly increase the U.S. adult population’s share of college grads from its current level of 38% to 50% or even 60%. It would take time, of course, but that’s where we’d be headed.

Most skeptics of student loan forgiveness will probably be impressed by such projections, but protest that the cost is too great.  And the cost is indeed great.  Cancelling $1.8 trillion in student debt doesn’t merely mean spending $1.8 trillion up front.  If it portends a regime change, this means hundreds of billions of additional dollars of spending every year.  With total U.S. debt already in excess of 130% of annual GDP – and inflation at a 40-year high – this a policy of radical profligacy.

Unlike most education researchers, however, I do not consider a large rise in the share of college graduates to be a glorious but prohibitively expensive goal.  I question the goal itself.  As I argue in my The Case Against Education, we must carefully distinguish between the effect of college for individuals and the effect for society as a whole.  The effect for individuals is basically what you’d expect: Despite ceaseless disappointing anecdotes about desperate college graduates, the average effect of college graduation is to sharply increase earnings and career success. 

The effect for society, however, is otherwise.  When the share of college graduates rises, the availability of good jobs barely changes.  The more degrees job seekers have, the more degrees job seekers need to keep their applications out of the garbage can.  When formal education expands, students need college degrees to get the same jobs their parents got with high school degrees - and their grandparents got with even less.  

Researchers call this credential inflation.  An individual with a printing press prospers, but a society can’t get rich simply by printing more money.  The same goes for credentials: An individual with prestigious credentials prospers, but society can’t get rich simply by awarding multitudinous fancy degrees.

When students acquire new, cutting-edge skills, economists normally expect the job market to adjust to make use of these futuristic talents.  In the real world, however, this rarely happens, for the simple reason that colleges rarely teach new, cutting-edge skills.  Indeed, they rarely teach old, tried-and-true skills. 

If you forget educators’ propaganda and reflect on your own educational experience, this ugly truth is hard to miss.  Most academic coursework is just too otherworldly to apply on the job. Students in Engineering, Computer Science, and Biochemistry obviously learn some useful stuff, though even they waste considerable time on idle theory.  Most of the softer majors don’t even pretend to prepare students for life after graduation.

Why then are credentials so important for career success?  Simple: Despite the low relevance of the curriculum, academic success is a great way to show, or certify, or “signal” your employability.  If you can endure the trials of school, you are also likely to endure the trials of work.  Instead of picturing education as job training, it is better to picture it as a passport to the real training… which happens on the job. 

I’ve now been a college teacher for a quarter century, and I continue to be stunned by the absurd idea that I’m capable of preparing my students for the thousands of jobs they end up doing.  Unless the student wants to become an economics professor like myself, the best I can do is put a stamp on their forehead saying, “grade A+ worker,” “grade B- worker,” or “grade F worker.”

If you never personally experienced college, the cry for maximum debt forgiveness would be hard to resist.  While the cost would be immense, who can forget the adage, “If you think education is expensive, try ignorance”?  For anyone who bluntly reflects on what we professors actually teach, however, it’s clear that society should be moving in the opposite direction.  Even back when students were legally required to make payments on their debts, far too many students were wasting social resources learning irrelevant material they could and did safely forget after the final exam. 

If, as I claim, education is a passport to the real training that happens on the job, the best thing for society is to fast forward to the real training.  Instead of fostering even more credential inflation with trillions of dollars of “forgiveness” spending, leaders should be shooting for credential deflation by ending student debt “relief” and reaffirming the duty to repay existing debt.  For starters.

A world of universal college is dystopian: People stay in school well into their thirties, studying boring material they’ll never need to know in real life.  What we really need is to return to a world where students can get good jobs straight out of high school.  If the share of college grads falls enough, that’s just what we’ll get.