Senator Elizabeth WarrenElizabeth WarrenArizona Democratic Party executive board censures Sinema Democrats call on Biden administration to ease entry to US for at-risk Afghans Biden stiff arms progressives on the Postal Service MORE (D-Mass.) and Congressman James Clyburn (D-S.C.) recently signaled their plan to introduce legislation that would forgive up to $50,000 of student loan debt for 42 million former students, or about 95 percent of debtholders. They claim recent graduates, on average, leave college owing $30,000 or more. This debt bonanza would be funded by a wealth tax on America’s super rich. Now another candidate — Senator Bernie SandersBernie SandersSunday shows - Russia standoff over Ukraine dominates Sanders says Biden can't count on him to support 'almost any' spending package compromise Sanders says Republicans are 'laughing all the way to Election Day' MORE (I-Vt.) — has jumped in with a bonanza of his own.
Are Americans drowning in student loans? Should we prioritize debt relief above any number of other spending priorities? The numbers say no, whether or not it turns out to be a winning political issue.
Echoing a statement she’s made many times while campaigning for president, Sen. Warren said, “The student debt crisis is real and it’s crushing millions of people — especially people of color. It’s time to decide: Are we going to be a country that only helps the rich and powerful get richer and more powerful, or are we going to be a country that invests in its future?”
Not to be outdone, Sen. Sanders upped the ante and promised that if he is elected president, he would cancel all $1.6 trillion in student debt and get the funds for doing so by imposing a fee on all stock and bond transactions.
Well, either way, all those who hold student debt should be overjoyed. Who wouldn’t be?
They, on average, are educated and employed in one of the world’s strongest economies. According to the Social Security Administration, the median bachelor’s degree holder can expect to earn $650,000 to $900,000 more in a lifetime than their cohorts with just a high school diploma. And to get to this enviable position, they borrowed money as students — voluntarily — and are now in the payback period.
But let’s push away the emotion and campaign rhetoric for a moment. The fact that a lot of Americans found it in their best interest to borrow money to pay for college tuition doesn’t mean there is a “crisis” that is “crushing millions of people” any more than does the fact that a lot of young American adults feel compelled to borrow money for SUVs or condos. We should probe deeper.
What about student loan delinquencies? Are they going through the roof?
According to data maintained by the Federal Reserve Bank of New York, the 90+ day delinquency rate on student loans has been relatively constant at 12 to 13 percent since 2012. There is no sudden increase. Indeed, if some former students have slowed in paying back loans, it may be because they expect some of their debt to be forgiven.
What about the loans themselves? Has the lending pace quickened in recent years? And is it true that U.S. students, facing unusually high tuition charges, have had to engage in more borrowing in pursuit of that $900,000 lifetime earning premium?
According to data from The College Board, a nonprofit seeking to expand access to higher education, 58 percent of bachelor’s graduates from public universities in 2016-17 had a student loan, and the average amount was $15,500. Ten years earlier, the share with a loan stood at 55 percent, a bit lower, and the average amount owed, adjusted for inflation, was also a bit lower at $12,400. For graduates from private universities, 61 percent held debt in 2016-17 and the average loan was $20,000. A decade earlier, the share with debt was higher, not lower, at 66 percent, and the average loan was nearly identical at $19,900.
Sen. Warren’s $30,000 figure emerges when graduate degree recipients are included. Debt is much higher for those graduating from medical colleges, law schools, and other graduate programs, but so are their expected earnings.
And so what are we to make of this student debt crisis? Is it about students or politics?
And if we impose a wealth tax for the purpose of erasing student debt, why not housing debt? Or car debt? Or hardships that hit people out the blue, like hospital debt?
Maybe we should leave well enough alone and let most of those good folks who signed the dotted line on a loan application bear up and pay up.
Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson University College of Business and Behavioral Science.