# [Zettel Feedback] Student Loan Forgiveness is Regressive

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UUID: ›[[202201202035]]
cdate: 01-20-2022 08:35 PM
tags: #proofing #economics
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# Student Loan Forgiveness is Regressive

Subatomic: Knock on effects of across-the-board loan forgiveness.

Surprising second order effects (Trophic cascade [[201901171252]]) of student loan forgiveness. More children of families in the middle and upper tiers of society go to university and take out loans to pay for it. These families can handle the loan burden. They tend to get larger loans to pay for education. That education lands them high paying jobs where they can afford to pay back the loan. Loan forgiveness favors these upper income people to a larger extent and with a larger amount of money than those less fortunate. This increases rather than decreases the economic gap between social classes.

• B-The Other [[202102012019]]

Across-the-board forgiveness is therefore a costly and ineffective way to reduce economic gaps by race or socioeconomic status. 1

…Accounting correctly for both human capital and effect of subsidies in student lending plans, almost a third of all student debt is owed by the wealthiest 20 percent of households and only 8 percent by the bottom 20 percent. Across-the-board student loan forgiveness is regressive measured by income, family affluence, educational attainment—and also wealth.1

1. Student Loan Forgiveness is Regressive by Alex Tabarrok January 20, 2022 at 7:29 am

Will Simpson
“Read Poetry, Listen to Good Music, and Get Exercise”
kestrelcreek.com

## Comments

• Mine was paid off (this is the modest passive voice), but I have no problem if some of my tax dollars go toward bailing out some people who are presumed to be doing well in this economy.

Maybe that would help more people afford homes or raise a family--neither of which I've done. Perhaps they might free themselves from the abysmal working conditions they've had to endure to pay off their loans, to name one axis of immiseration the marginal economist probably omitted from their calculations. A complete picture of the opportunity costs isn't guaranteed to be employer-friendly.

Forgive me if I take the view that capitalism has been oversold.

Erdős #2. ZK software components. “If you’re thinking without writing, you only think you’re thinking.” -- Leslie Lamport. Replies sometimes delayed since life is short.

• edited January 27

@ZettelDistraction said:
Forgive me if I take the view that capitalism has been oversold.

I lost an addendum, which was to point out what would happen if the subsidies to research universities were withdrawn.

One of the functions of the university, at least in the United States, is the development of innovations that are turned over to corporations for profit. The taxpayer funds these. Student loans enter the picture to offset the cost of the subsidy. If this "temporary subsidy" were withdrawn, and only those individuals who could afford to go to college attended, as certain libertarians have proposed, the United States could not only say goodbye to most of the student (administrative and faculty) labor enlisted in the development of such minor innovations as the Internet, the digital computer, etc., it could say goodbye to capital expenditures enabled through the collection of tuition and various fees, at least for those innovations that happen to be capital intensive, and the United States could also say goodbye to its technological standing in the world. Why not accelerate the process?

As if businesses are going to pick up the slack, when the students themselves have to pay back with interest a significant portion of the corporate subsidy for innovation in the US. Those loans cannot be discharged in bankruptcy. Discharging student loans in bankruptcy would disrupt the unilateral transfer of research and development risk from business to the public. That student loan forgiveness would "benefit" more affluent families who could afford to pay them back is a distraction from the change in risk pooling arrangements that currently benefit business. Business lobbyists don't want to hear that the diode of risk transfer is reversing. There could be unintended consequences unfavorable to employers, such as employees with greater economic opportunity . That's the issue: who bears the risk. Not only that the portion of the public that had more R&D risk transferred to them through larger student loans might benefit more than those who absorbed less of it. It's misleading to speak as if the students who took on student loans and universities were the only beneficiaries. Leaving out the risk pooling arrangement designed to facilitate the transfer of R&D risk from business to the public distorts the economic picture. It's a clever rhetorical move though, because it makes it seem as if business interests are irrelevant, and that advocates of student loan forgiveness are indifferent to the plight of minorities and the less affluent.

What happened when conservative lawmakers in the 90s decided to cut funding for research and development in high-performance computing? Lawmakers "reasoned" that businesses, motivated by profit, would through the miracle of the market innovate and maintain the supremacy of the United Stated in high performance computing. Thanks to the incredible ability of the market to solve all economic and social problems in the favor of the most ardent lassiez faire ideologues, Japan overtook the United States with its Earth Simulator, and then China also, if I recall.

Suppose student loans were discontinued. Businesses would squeal like stuck pigs having to absorb more of the R&D risk. Wall Street would love watching its profits and stock values plummet. The Street craves market discipline. My point is that cancelling student debt would be economically insignificant compared with eliminating student loans altogether.

Would you invest in a company whose business plan involved offering investors the opportunity to pay as an ordinary consumer in the consumer market for the service or product your investment helped to develop? No other return on your investment. That's the deal. Wall Street won't object. Perhaps Indiegogo and Kickstarter are counter-examples to the government model, through their crowdfunding of such Moonshot-scale engineering marvels as the hexagonal digital USB-rechargable Pomodoro timer and the direct current transcranial stimulation headset. A mere hop skip and a jump from the space program, climate science research (you think the US is going to leave a matter of national security to Iran, Russia or China or even any of its allies?), the Manhattan Project, and the development, manufacture and distribution of the COVID-19 vaccine.

When I was writing grants, I happened to notice (how could you not?) that handing an invention over to business is a mere checkmark in the grant proposal application. It's built in. That was it. A checkbox.

I mentioned the checkbox to a mathematician from Yale, who took me aside.

"Yes it's understood, but one doesn't go around saying so." We had a good thing going.

Post edited by ZettelDistraction on

Erdős #2. ZK software components. “If you’re thinking without writing, you only think you’re thinking.” -- Leslie Lamport. Replies sometimes delayed since life is short.

• Since I had launched into my tirade without having read @Sascha's post on [Zettel Feedback], it wasn't responsive. Great Zettel.

Erdős #2. ZK software components. “If you’re thinking without writing, you only think you’re thinking.” -- Leslie Lamport. Replies sometimes delayed since life is short.

• I'd add a introductory sentence: "Student loan forgiveness is regressive because a) student loans dispoportionally burden the wealthy and therefore b) indiscriminitory loan erasure benefits the wealthy more than the poor."

If I really am formal about my notes I have a more technical summary in the beginning. In this case, the "a)" and "b)" could be the reference points for the later texts:

a) More children of families in the middle and upper tiers of society go to university and take out loans to pay for it. These families can handle the loan burden. They tend to get larger loans to pay for education. That education lands them high paying jobs where they can afford to pay back the loan. Loan forgiveness favors these upper income people to a larger extent and with a larger amount of money than those less fortunate.
b) This increases rather than decreases the economic gap between social classes.

I am a Zettler

• Yes! I like the distinction you introduce as "formal" zettel. Some zettel are of necessary more formal than others. Yours is an example of a little less formal note.

I see how my note is two ideas. a) "student loans disproportionally burden the wealthy" and separately b) "indiscriminate loan forgiveness benefits the wealthy more than the poor." Separating them as you suggest makes it easier to link to the separate ideas in the note.

Will Simpson
“Read Poetry, Listen to Good Music, and Get Exercise”
kestrelcreek.com

• I wouldn't necessarly go that far that the note is about two ideas. I see it more as about the connection of those two ideas.

I am a Zettler

• This survey on the demographics of student loan debt in the United States may be of interest: CNBC survey: Student loan holders are more likely to be women and people of color.

Erdős #2. ZK software components. “If you’re thinking without writing, you only think you’re thinking.” -- Leslie Lamport. Replies sometimes delayed since life is short.

• @ZettelDistraction said:
This survey on the demographics of student loan debt in the United States may be of interest: CNBC survey: Student loan holders are more likely to be women and people of color.

Thank you for this reference. I found the article interesting and it sent me on a morning journey exploring the economic policy implications of student loan debt. I'm no expert and I have to trust others who study this field just like I trust my doctor to know more than me in the field of medicine.

Anyways, I revised and grew my original zettel to now 570 words. This work has spawned a new zettel Median Wealth vs. Average Wealth [[202201300824]].

Thanks for you help.

HERE IT IS.

---
UUID: ›[[202201202035]]
cdate: 01-20-2022 08:35 PM
tags: #economics
---

## Student Loan Forgiveness is Regressive

Subatomic: Student loan forgiveness is regressive because a) student loans disproportionally burden the wealthy and therefore b) indiscriminate loan forgiveness benefits the wealthy more than the poor.

There are surprising second-order effects (Trophic cascade [[201901171252]]) of student loan forgiveness. More children of families in the middle and upper tiers of society go to university and take out loans to pay for it. These families can handle the loan burden. They tend to get larger loans to pay for education. That education lands them high-paying jobs where they can afford to pay back the loan. Loan forgiveness favors these upper-income people to a more significant extent and with a more considerable amount of money than those less fortunate—this increases rather than decreases the economic gap between social classes.

• B-The Other [[202102012019]]

Across-the-board forgiveness is therefore a costly and ineffective way to reduce economic gaps by race or socioeconomic status.
…Accounting correctly for both human capital and effect of subsidies in student lending plans, almost a third of all student debt is owed by the wealthiest 20 percent of households and only 8 percent by the bottom 20 percent. Across-the-board student loan forgiveness is regressive measured by income, family affluence, educational attainment—and also wealth.1

Most arguments consider student loan debt as a liability and forego the examination of the asset that the education the loan pays for.

Student debt forgiveness, the argument goes, would benefit the poorest households. But as [Brookings Institution, economist Adam Looney] notes, this is like "assessing a homeowner's wealth by counting their mortgage balance but not the value of their home."
Looney estimates the value of households' education investments—the increase in lifetime income attributable to the degrees their members hold. Before adding the value of education to household balance sheets, 53% of student debt is held by households in the bottom quintile of wealth—afterwards, the share of student debt held by the poorest fifth drops to 8%. Households above the median wealth owe the vast majority of student debt. 2

Median Wealth vs. Average Wealth [[202201300824]]

I'd argue for a targeted forgiveness program. Make college loan practices less predatory.

Ultimately I'd be all in for making upper education as we know it today to be free for everyone. Free education has second-order effects also, but I'd think they'd be mostly positive.

Cost and benefits should be factored in when considering the student's loan and education/future earning potential. More importantly, the cost and benefits to society should take precedence. I'm just guessing the costs of university education are orders of magnitude less than the total benefits to a peaceful and advancing society.

Confirmation argument.

• Study: Most Student Debt Belongs To High-Wealth Households

1. Student Loan Forgiveness is Regressive by Alex Tabarrok January 20, 2022 at 7:29 am

↩︎

2. Counterargument.

↩︎

Will Simpson
“Read Poetry, Listen to Good Music, and Get Exercise”
kestrelcreek.com

• edited January 31

I don't see how student loans disproportionately burden the wealthy. The cost benefit analysis is off. Depending on how you define the wealthy, the wealthy could benefit by lending money. There are many interests at work. For example, schools front-load financial aid and underestimate non-tuition expenses. Deceptive practices lead to an increase in student loan debt.

Erdős #2. ZK software components. “If you’re thinking without writing, you only think you’re thinking.” -- Leslie Lamport. Replies sometimes delayed since life is short.

• there is no such thing as forgiving debt or free education. Student loan forgiveness is a solution which allows us to artificially sustain a system that is not self-sustainable.

Motive of the discussion is not whether the solution should be implemented or not, but rather how to implement it - it should be fair, or efficient, or whatever.

But now, the complexity of the problem increases. The debt is affecting people and those people have a skin colour, a sex and are all unhappy about their debt. And we all have statistics to proof all that.

Roughly half of all students are below average. It's a travesty! Someone should do something!
__ KW7, 2021

This is a red flag. It shows that the goals have not been sufficiently defined. Rather than making the solution work somehow, my advice is to go one step back in the planning process.

my first Zettel uid: 202008120915

• edited February 1

@Will said:
Thank you for this reference. I found the article interesting and it sent me on a morning journey exploring the economic policy implications of student loan debt. I'm no expert and I have to trust others who study this field just like I trust my doctor to know more than me in the field of medicine.

More articles on this subject.

Student Loan Payment Plan Promises Forgiveness but Rarely Delivers

NY Times: Portraits of Relief. PSLF

"Economists aren't in control of their subject." I quote a very good mathematician who was a former advisor and who died over the summer, unfortunately. (His opinion on economists wasn't the reason.) That's a representative opinion among mathematicians--and even among economists! Economics and game theory are interests--I tend toward this opinion. This is to say nothing of a pro-employer bias of the Marginal Economists (I stop short of saying pro-capitalist, although I use the Karl-Marx-Stadt theme for Zettlr). I have a considerably higher opinion of doctors.

The mixed sentiments surrounding this issue add to my sense of relief to have paid off my own student loan. I had heard about the horror stories dealing with the loan processor for the Public Service Loan Forgiveness (PSLF) program (see the NYT article above, and elsewhere) and decided that I could not trust the loan servicer. My own loan servicer was reliable. Perhaps I could have saved thousands of dollars by taking on the second job of tracking the lost and miscalculated credits by the loan servicer of the PSLF program, but I decided that the program was too risky as it had been implemented, my own loan servicer appeared honest and reliable, and I wanted to be rid of a liability virtually impossible to discharge in bankruptcy, should my circumstances change for the worse, without the added uncertainty of an unreliable loan processor. The taxpayer was ahead in my case, since I did not participate in the PSLF (or in the income-driven repayment plans). I would like at least some of the money that the taxpayer saved in my case to go toward relief for others who are eligible. (Or in funding efforts to avoid a nuclear conflict with Russia over Ukraine. That's a bigger issue.)

Erdős #2. ZK software components. “If you’re thinking without writing, you only think you’re thinking.” -- Leslie Lamport. Replies sometimes delayed since life is short.

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