Economist Marshall Steinbaum recently appeared on my radio show zero hour to discuss the economic and ethical issues surrounding the cancellation of student debt. Steinbaum, senior researcher in higher education finance at the Jain Family Institute and professor at the University of Utah, is one of the authors of a seminal 2018 study by the Levy Economics Institute on the macroeconomic impact of the student debt. As the pressure mounts for a solution, Steinbaum discussed with me both the economics and the ethics of student debt. The following selections from the interview have been lightly edited for clarity.
“We’ve now had a reimbursement pause for almost two years,” Steinbaum said, and “the president just extended it for a few more months.” (Note: Refunds have been suspended until May 1, 2022.) “And my view is that this, along with other…pandemic emergency income support policies for households, is a good reason why the pandemic period hasn’t been much worse, economically. speaking, for the United States.”
Steinbaum adds, “In that sense, I view the repayment pause as vindicating the predictions of the macroeconomic paper.”
Watch the interview:
In the following exchange, Steinbaum discussed the ethical and economic dimensions of student debt:
ESKOW: You can also put a pin in…the moral argument, which exists quite apart from economics…(and ask) if, in fact, it was socially unjust to impose this debt on people to get what we could say is a public good. (It) should arguably be dealt with in another way as we correct the injustice, perhaps by going to people with higher disposable income than student debt holders. Would you be okay with that?
STEINBAUM: Yes, I definitely agree with that. I would add another point to that…there is certainly a moral argument for canceling student debt and a moral argument—a immoral case – that student debt is an unfair way to fund a higher education system…I think people had to go into more debt to get basically the same job they could have gotten before with less money student debt if they were born in a previous cohort, either because college was cheaper or because their job simply didn’t require a college education….
ESKOW: …You talk about some sort of “degree inflation”…and (you wrote it) almost all negative net worth households are in negative territory, thanks to student debt. This category is growing rapidly. Could you say something about this?
STEINBAUM: Of course. Student debt is by far the biggest reason a household would ever be in negative territory…student debt is unsecured…So if you look at the student debt crisis, as we call it, which is just let’s say growing student loan balances in the population…Before that, very few households were in negative territory.
ESKOW: So if you think that as a social condition, households with negative net worth are a problem, then … canceling student debt would help solve that problem in a very significant way. To the right?
STEINBAUM: Yes. And… I think “degree inflation,” as you characterize it, is a fact. It’s a trend in the labor market, more and more over time, an entirely empirical thing.
This idea that negative household net worth doesn’t matter, because you should be counting human capital, is more of a theoretical argument. …especially because a lot of student debtors don’t have a college degree or even college experience at all…(many economists) believe that if you go to college you make more money than you otherwise would have earned, and that should be capitalized into your household equity.
And that, I think, is like the brain of a total economist.
ESKOW: And Marshall, I thought about the issue of non-repayment (of student loans)…if borrowers can’t repay them, then the only impact of not canceling their debt is on their harm… It’s almost Calvinistic. “Well, you incurred this debt, you should have known. And while there’s no benefit to continuing to have this debt on you, we want to make sure you’re in extreme and prolonged pain because you dared to do it Am I unjust?
STEINBAUM: No, no, I think it’s entirely accurate to reinterpret what are supposed to be economic arguments in light of what’s actually happening, which is largely judgmental judgment…
ESKOW: I “stan” (American philosopher and education advocate) John Dewey. I think education has a social and cultural value that cannot be expressed in dollars and cents. But, in fact, it seems to me that we are charging students usurious rates to get an education that will benefit everyone else at least as much as it benefits them, and probably more. In that sense, we are indebted to them, not the other way around. What do you think of that?
STEINBAUM: I definitely subscribe to the idea that higher education, like all education, is a public good. And it was a mistake from the start to view it as an investment in your future earnings. You know, this is called the human capital model in economics, i.e. an ideology of privatization of public goods…
But I see my role in all of this as taking this whole debate away from the idea that people are investing in education to invest in their future earnings.
The full interview can be viewed here or above.