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The Middle-Class Case for Student Debt Forgiveness

U.S. President Biden sent shockwaves after he announced his plan to forgive university student loans. Many student debt holders were satisfied with the prospect of a bit of financial relief. Individuals making under $125,000 and households making under $250,000 will have up to $10,000 forgiven. But is everyone happy?

The long 20th century was built on the idea of the upward socio-economic mobility produced by a college education. Much of the parent-child relationship is centered around anxiety-inducing preparation for college. There is a nexus of private and public sector collaboration to facilitate this objective. As one Twitter user commented, “but let's entertain this for a sec: if you, at age 18, had just walked up to a bank and asked for a $200k loan, what kind of bank would say "sure"?” Rather than an individual decision, it’s clear that there is a collective construct conveyer-belting naive teens into significant long-term financial decisions. This construct led to a feedback loop in the job market that required more and more college degrees. The demand push led to unseemly increases in the costs of college along with what many consider to be a decline in the quality of education. Finally, the economy is failing to adequately place these degree holders in expected jobs and income levels.

In a world where Wall Street gets bailed out, is the idea that swindled young people getting a little of the same medicine so bad? According to some, it’s far worse. Biden’s plan sent the right-wing pundit class into high gear. The chorus generally squawked that this was a “wealth transfer” from the “working class” to the “elites” and/or “stupid” majors. Some of the opponents are Texas Senator Ted Cruz, Fox News Correspondent Katie Pavlich, and Reason Magazine Writer Robby Soave. Silicon Valley venture capitalist Jason Calacanis also voiced his displeasure showing how this issue was felt by the radical centrist community.

There is a common thread to all these hot takes. The more specific Tweets cited 70% of the student debt forgiven accrues to those in the top 60% of the income distribution. The Tweets that don’t cite these specific numbers are most likely derived from these statistics. So where did these numbers come from? Media outlets like Bloomberg, Axios, Reason Magazine, and Tax Foundation have published articles quoting these numbers. They all cite The Penn Wharton Budget Model paper as their primary source. The paper, published slightly before Biden’s announcement, includes a first-page summary that states “about 70 percent of debt relief accrues to borrowers in the top 60 percent of the income distribution.”

Well, there you have it. The University of Pennsylvania’s edict finds all rich, elite, and woke student debt holders guilty! But, wait… what does their own data say? Using their data, I charted the income quintiles and added some notes. The upper 60% figure hugs the lower limit quite a bit. Remember, Biden’s plan has income caps that exclude the rich. 80% of that upper 60% are those earning incomes between $52,000 and $125,000 from the middle and fourth income quintiles. The remainder in higher distributions will tend to be two-earner households earning a max of $250,000. A household would need to earn $141,000 total or $70,500 by each spouse to be considered in the top quintile. We should also not neglect the 30% of bottom and second quintile debt holders that will be helped. The conclusion here is that far from being a pet issue of rich elites, the student debt forgiveness plan is a bailout for the middle class.

Biden’s bailout is going towards people with modest green lawns or cramped studio apartments. It’s going to those who drive a Honda Civic or ride the commuter rail. It's going towards those who sit in swivel chairs. Our spreadsheet Americans. Our PowerPoint patriots. Our Dunkin Donut soldiers. Our essential non-essential workers. They come from families who were middle class and worked hard to help send their kids to college. Some might suggest that their incomes are still pretty cushy however an overlooked aspect of degree holders is their geography.

The U.S. counties with the highest levels of university degree holders are correlated with major metro areas. Another correlated characteristic of major metro areas is an increased cost of living. The Tax Foundation calculated that the relative value of $100 is about $80 in the New York City area contrasted to a relative value of about $120 in the rural Midwest. Let’s say a random college degree holder earns about $70,000 per year. If they live in a major metro area, we should cut that figure by 20% resulting in a relative value of $56,000. The cost of living differences are no laughing matter. They drastically affect the real utility of whatever extra income is attained by a degree. The jobs that need college degree holders are primarily in these urban centers and so a degree is not very portable outside those centers. Additionally, if an individual grew up in a major metro area, has family and friends in said area, and wants to stay there then they need to access the job market that enables them to cover the higher cost of living.

So college degree holders are not rich elites. In fact, they are actually very middle class. They are probably gauche and have those Live, Laugh, Love signs in their houses. Yuck! But besides that, another key aspect the right-winger pundits were complaining about was that these were wokesters that picked uneconomical majors. Let’s review data from the U.S. Department of Education’s National Center for Education Statistics to see if they are correct.

The top college major for the most recent year’s data is — drum roll — business! Oh whoops. That doesn’t sound that woke or that those students were thinking well un-business-like. Business makes up 19% of the total followed by health professionals (think nursing) at 12.6%, social sciences and history (economics is included in this) at 7.8%, engineering at 6.3%, and biological and biomedical sciences at 6.21%. The most popular majors are actually the types of fields that one would consider most safe or with high earning potential. For perspective, the dreaded area, ethnic, cultural, gender, and group studies majors only make up 0.38% of the total.

Let’s zoom out even more. I curated each major into a based or woke category. Based is defined by traditional STEM majors or majors that are seen as safe or economical. Woke is defined as those majors that are humanities-focused and have low economic viability. Surprisingly, college degrees have gotten way more based since 1970. 56% of majors are based which grew from 33.8% in 1970. Woke majors have been slightly declining since 2005 concluding with 31%. I parsed out two inbetween majors. Education is a very secure field in terms of job prospects but also can be called woke by right-wingers. Social Sciences and history are humanities-focused but also contain STEM-adjacent sub-majors like economics and sociology as well as law school prep-sub-majors like political science and history. Both their shares of total majors drastically declined since 1970. Most college degree holders and thus student debt holders are actually pretty based and they’ve gotten more based over time. Most are making the safe and economical decisions the right-wingers say they aren’t doing.

So we’ve knocked out the first leg (“rich elites”) and second leg (“they’re woke”) of this faux argument. The last leg it’s standing on is the “working class” are paying for it. Paying how? Through taxes. Who pays the taxes again? Careful neoliberal argument A is contradicting neoliberal argument B. Many of the same critics of student loan forgiveness would in another context say that you can’t tax the rich more because they already pay most of the income taxes. And they’re right!

The Congressional Budget Office states that the top income quintile pays 69% of federal income taxes collected. The Institute on Taxation and Economic Policy states that they pay 66%. The Tax Policy Center states that they pay 67.7%. The Heritage Foundation states that the top quarter pays 87%. Using the CBO as the gold standard, we can also see that when we include the fourth quintile those making $85,000 or more pay 87% of all income taxes collected. If we consider the “working class” the lowest and second quintile, they pay about 3% of all income taxes collected. The middle quintile or middle class pays about 10%. Rather than a regressive wealth transfer from the working class truck drivers and plumbers earning modest incomes, the student loan forgiveness plan is actually a progressive wealth transfer from the upper class to the middle class who are also paying a decent chunk horizontally back to themselves.

And just like that, the final leg of the faux argument is removed. Those most benefitting from the student loan forgiveness are not rich, woke, or transferring wealth from bottom to top. They are actually those that earn middle-class wages, chose conservative majors, and transferring wealth from the top to middle if not middle to middle.

The middle class has been getting squeezed ever since the neoliberal revolution. The constituency no one wants to stand for is the middle class. The rich are job creators and donors. The poor are victims and moral superiors. The middle class are just the punching bags of the upper and lower classes and their political avatars. The 2020s mark the end of the neoliberal era. It should also mark the end of this disdain for the middle class.

The middle class are the backbone of society. They are the true managerial class. They are not capital owners who have no practical expertise. They are not unskilled labour who don’t understand the system they are one part of. The economy runs on skilled and managerial labour. These are the people that show up to work on time, pay their taxes (*cough cough* cash businesses that don’t require a college degree), don’t commit crimes, and output the key intellectual work necessary to sustain and grow a modern economy. It seems like for the first time the middle class finally got a concession. The rich get perks like carried interest loopholes and there have been substantial transfers made to those at the lower end of the spectrum. The middle class doesn’t qualify for the lower class subsidies and aren’t earning enough to partake in those Buffet benefits.

Regardless of political party affiliation, the concept of student loan forgiveness is a positive policy for the middle class. More could certainly be done like penalizing parasitical universities, offering refunds to those who already paid back their loans, and reshaping the job market. But these fair criticisms of the existing plan not doing more is not an excuse for it to do less.

As a final note, another aspect is age. High income earners are on average older compared to younger student debt holders. In short, 55 year-olds are transferring their income to 30 year-olds. Considering the average age of marriage is about 30 and the U.S. has a below replacement fertility rate crisis, couldn’t we view this policy as perhaps pro-family?

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