I hear the complaints:
"Why should people who never had college loans, or who have paid off their loans, give their tax money to people who still have student loans?"
The reason to do it is that an educated workforce and citizenry benefits all Americans. College is expensive and comes when most students are young, before they have started earning money to pay for it. So they borrow. The debt becomes a debilitating burden that creates downstream problems involving job mobility and delayed childrearing and home-buying.
The reason not to do it is that it is inevitably haphazard and unequal in its benefits. It is unfair.
Bailouts and rescues create moral hazard. Every insurance company understands moral hazard. People feel more free to do risky things. As a County Commissioner 40 years ago I confronted the problem. Jackson County, Oregon was spending hundreds of thousands of dollars a year doing Search and Rescue missions to imprudent hikers who got lost. Frantic relatives would call 911. Out would go planes and search crews. The county had created a moral hazard. We commissioners asked: Why should local taxpayers pay to rescue hikers lost in the forest? We should charge relatives who called 911 the full cost of the rescue. Bankrupt them. Take their homes. We considered it. Wouldn't a few bankruptcies or lost-hiker deaths every year send a "tough love" message to hikers? The sheriff's Search and Rescue team strongly opposed that. They argued that it was an obligation to save people in distress. Everyone deserves being rescued, they said. We continued the program, but I felt conflicted. Why should I and other taxpayers pay for other people's foolishness?
Oregon taxpayers paid to assist New Orleans when it flooded after Hurricane Katrina, even though parts of the city are below the level of the Mississippi--a long-predicted accident waiting to happen. Oregon taxpayers funded FEMA operations in wealthy neighborhoods of Houston when heavy rainfall overwhelmed their storm drain system. Houston allowed building in low-lying areas. How unfair to us.
But then FEMA came to the aid of people in my own community. A fire swept from house to house in a fifteen mile corridor along a dense tangle of parkland and mobile homes. Over 2,000 homes burned. County and city governments had allowed the dense brush. FEMA brought emergency housing. The payback was uncertain in time and amount, but after a hot, windy summer day in 2020 it was our turn.
The home mortgage interest deduction is a transfer of wealth from people without home mortgages to people with them. It is a huge subsidy, many times greater than student loan forgiveness. The subsidy is haphazard and unfair, but people with home mortgages like it and think it is fair. After all, the country is better off if more Americans are homeowners. Widespread home ownership stabilizes communities.
People paying that subsidy to home owners include people who cannot afford a house--poor people. The subsidy is also paid by people like me, who long ago paid off a small mortgage debt. The tax deduction for interest on a $750,000 mortgage at 5% interest is $37,500, a net after-tax cash benefit of about $14,000. Why should taxpayers without a mortgage loan subsidize people who have mortgages? It is like people who paid off student debt or who never had any, paying to bail out people with student debt. It is unequal. It is unfair.
Politicians and Fox news hosts opposing student loan forgiveness complain that some college students take classes they think are useless. How unfair to people without college loans to be forced to pay to bail out people who took ridiculous and wasteful sociology classes.
This new house, not far from mine, has a 30-foot entry. This homeowner would qualify for the $14,000 annual subsidy paid by people who do not have a big home mortgage. How unfair that people without a home mortgage to be forced to pay to subsidize people who bought a house with this ridiculous and wasteful entry.
Student loan forgiveness makes sense for the same reason that home mortgage interest deductions do. Governments assist people to achieve worthy goals and we subsidize it.
Rescues are uneven in application. They are unfair. We help the worthy and the less worthy. Sometimes we ourselves are benefitted. Sometimes not. Someday we may get lost in the forest or our town will flood or burn up. Countries are better off with survivors, not casualties.
Thanks, Peter. I reposted this to my FB page. Such a well-reasoned argument. We really are ALL in this world together.