President Biden recently announced his plan for student loan forgiveness. It’s a policy that helps build the economy from the middle out by erasing some of the 1.7 trillion dollars in debt that’s holding Americans back. Economist Marshall Steinbaum, who has spent most of his career researching student debt, explains why this forgiveness plan is a great start—and why Biden can, and should, do more.
Marshall Steinbaum is an Assistant Professor of Economics at the University of Utah and a Senior Fellow in Higher Education Finance at Jain Family Institute.
Twitter: @Econ_Marshall
The Student Debt Crisis is a Crisis of Non-Repayment
https://www.phenomenalworld.org/analysis/crisis-of-non-repayment
A Middle-Out Education https://civicventures.substack.com/p/a-middle-out-education
Website: https://pitchforkeconomics.com/
Twitter: @PitchforkEcon
Instagram: @pitchforkeconomics
Nick’s twitter: @NickHanauer
Marshall Steinbaum:
Student debt cancellation has been a long time in coming and it’s very gratifying that it seems like it might finally happen.
Nick Hanauer:
Skyrocketing prices for higher education and a generation of wage suppression is what created this crisis, not the profligate personal spending of the students themselves.
David Goldstein:
This is a policy that is aimed squarely at the middle class, because that is how you build an economy.
Speaker 4:
From the home offices of Civic Ventures in Downtown Seattle, this is Pitchfork Economics with Nick Hanauer, the best place to get the truth about who gets what and why.
Nick Hanauer:
I’m Nick Hanauer, founder of Civic Ventures.
David Goldstein:
I’m David Goldstein, Senior Fellow at Civic Ventures. When President Biden announced his student loan forgiveness program, Nick, we knew we had to do an episode on it. And the first guest you thought of was Marshall Steinbaum.
Nick Hanauer:
Absolutely.
David Goldstein:
Why?
Nick Hanauer:
Well, two reasons. The first is I know a bit about Marshall’s research agenda, which has been focused a lot on student debt. Marshall is Assistant Professor, University of Utah, and has done a ton of work and advocacy around this, but also because we love Marshall because he is a flame thrower, much like us, and we just love talking to him.
David Goldstein:
And he’s been doing this, he’s been talking about this for a while. This has been part of his-
Nick Hanauer:
Oh, yeah. For sure.
David Goldstein:
… core subject area, the student debt crisis.
Nick Hanauer:
Yeah. And Marshall is one of the very few economists that we get to talk to who is classically trained, but unconstrained by a lot of that orthodoxy. He was a person who learned it all and then turned it over in his head and said, “Well, a lot of this just makes zero sense, it’s just not true.” As we’ve said many times before, it’s internally consistent, mathematically elegant. It just has no purchase here on planet earth. And as a consequence, he sees things in new ways, and I think he’s just a deeply penetrating thinker and a super articulate guy. So as any listener of the pod must know when President Biden announced the student debt cancellation, a lot of people lost their minds. I mean obviously there were a lot of people who lost their minds in a good way. Tens of millions of people holding debt, but in the economics profession and the policy world, people had kittens over this and lots of our favorite people just freaked out because they called it inflationary and moral hazard and all sorts of crazy things.
David Goldstein:
Oh, it is unfair.
Nick Hanauer:
Yes.
David Goldstein:
It’s unfair to people like you, Nick, who paid your $750 a year in tuition to go to-
Nick Hanauer:
Exactly.
David Goldstein:
… one of the top public universities in the country.
Nick Hanauer:
Yeah. That’s right.
David Goldstein:
Yeah.
Nick Hanauer:
I know, it’s so unfair to me. In any case, let’s just get right into our conversation with Marshall Steinbaum to talk at length about this policy and the pluses and minuses.
Marshall Steinbaum:
I’m Marshall Steinbaum, Assistant Professor of Economics at the University of Utah and Senior Fellow in Higher Education Finance at the Jain Family Institute. And I don’t think I have anything to plug other than the idea that student debt cancellation has been a long time in coming, and it’s very gratifying that it seems like it might finally happen.
Nick Hanauer:
So Marshall, so great to have you with us again. Student debt cancellation of course is in the news and here at Pitchfork Economics, we couldn’t be more pleased that the Biden administration actually did something. I think you’ll agree with us that they could have gone farther and should have, but we’re probably always going to say that about everything, but tell us, give us perspectives on the circumstance, the causes and where we’re at.
Marshall Steinbaum:
Yes. Well, all of those things are right, as you say, it’s very gratifying to see this actually take shape because as we have too much experience with lots of big dreams get crushed in the political process for no good reason. And it’s nice that this one actually emerged only semi scathed, I won’t say completely unscathed, but it actually got through to the other side or at least has gotten through a major potential roadblock. Student debt cancellation used to be a radical idea when I first got into researching student debt and well, student debt at first in 2015. Cancellation wasn’t even remotely on the table, that started happening I would say around 2017, and this idea that the president could do it by unilateral executive action took even a little bit more time to emerge, but throughout all of that there’s been an enormous resistance from what I would call the higher education policy establishment, because they’re all of the belief that more or less the higher education system works as intended, which is to say people, students take out loans and invest in their future earnings.
And as a result of getting an education experience pay increase that enables them to repay those loans. And I’ve never thought that that was particularly accurate. I first got into student debt because as you well know I studied the labor market and I was thinking, “Well, wages have been stagnant, student debt is mounting up and up and up over time, that doesn’t look like a very convincing theory to me.” So this is sort of one, I mean, I think the last time I was on this podcast, we discussed all of the evidence, the empirical evidence that shows that the theory of competition in the labor market is false. Student debt is one big gorilla in the room worth of evidence that shows that that theory of how the labor market works is false, and that’s why I got into it. So I’ve been kind of following this policy proposal there for a good number of years. And at every stage, as I say, the higher education policy establishment didn’t want to confront the fact that this promise of higher pay, enabling people to pay off debt was false.
There were sort of other constituencies within the political system that thought that this was a relatively low priority. You still hear even now that student borrowers are a minority of the population, so why should we be so worried about them? The sort of typical thing of, there’s always somebody who’s more supposedly sympathetic of a victim and we should be advocating on behalf of that person as against student debtors. All of that is what I would consider to be demonstrative of an elitist political economy that says people can’t advocate on behalf of themselves. Students saying, “I’m burdened by debt and I can’t pay it back.” Should be ignored in favor of the priority list drafted up by elites.
Nick Hanauer:
Yeah.
Marshall Steinbaum:
And so this thing finally happening kind of validates that entire theory that politics is a bottom up process or could be a bottom up process at root, and a lot of people who were sort of standing in the gateway trying to prevent public popular demands from being met have been pushed aside. And that is enormously redeeming for those of us who are very cynical about politics.
Nick Hanauer:
Just for a moment, can we zoom out a little bit and contextualize this conversation? How big is the student debt overhang at present? I mean it’s a big number, it’s 1.3 trillion isn’t it?
Marshall Steinbaum:
Oh, it’s more than that-
Nick Hanauer:
More.
Marshall Steinbaum:
… I mean the total amount outstanding is something like 1.7 trillion.
Nick Hanauer:
Wow.
Marshall Steinbaum:
And it’s all… I mean I’m going to say it’s all bad debt. Some of it will be paid back, some of it is being paid back even during the repayment pause. And if they lift the repayment pause, more of it will be paid back. But the vast majority of that $1.7 trillion is never going to be paid back, so this is reflective of the messed up higher education finance system that we have. Basically what happened is states defunded public university systems where the vast majority of students go that caused those systems to re-engineer themselves as private goods in effect, so they get much less state funding instead they’ll raise tuition and soak in money that’s all back stopped by federal student loans. And the federal government’s view is more people should go to college and graduate school, so they will originate lots and lots of loans on the front end much more generously than say a private bank would absent federal policy, because they want to kind of push more and more people through the doors of the higher education establishment.
And then on the back end they’ll try to collect the loans that they’ve issued and lo and behold people didn’t experience the pay increases that were supposedly going to make those loans economic to repay. And so they can’t collect it on the back end. So we’ve had this kind of system where the state governments like it because they can defund institutions and use the money for regressive tax cuts. Institutions like it, especially the fanciest institutions because they can say, “Oh, well we’re very elite. Look at how selective we are, here we’re going to charge this ridiculous tuition to come here because you get access to the upper echelons of the social hierarchy. So we are happy to be what are in effect, private colleges, even if we’re notionally a public university.” And elite higher ed administrators like that system and Congress likes it because the federal student loan program looks like a revenue positive from the perspective of The Congressional Budget Office because the federal government loans out the money at higher interest rates than it costs the Treasury to borrow it.
So the federal government has basically turned itself into a bank for the purposes of student lending that is they borrow The Treasury, goes on the market and sells US Treasury bonds at a low interest rate and then issues student debt at a high interest rate. And that looks to Congress like giant increase in revenue, so that enables Congress to pass regressive tax cuts. I mean that very thing happened in the 2000s during the Bush tax cuts where the lifting of the loan limits for graduate loans was so-called paid for to enable regressive tax cuts.
Nick Hanauer:
Oh my God. [inaudible 00:10:30]. I did not realize that.
Marshall Steinbaum:
Yeah.
Nick Hanauer:
Holy shit.
David Goldstein:
I never quite wrapped my mind around that little accounting [inaudible 00:10:41].
Marshall Steinbaum:
Yeah. And it all starts to make sense now why everyone is so angry that, “Oh my God, we issued a $1.7 trillion of student debt that’s not being repaid, oh, wait a second, where did we screw up?” And then they try of course to point the finger at borrowers-
David Goldstein:
Yeah.
Marshall Steinbaum:
… and [inaudible 00:10:53] irresponsibility when it’s the policy makers’ irresponsibility that created this crisis in the first place.
Nick Hanauer:
Right. But let’s just zoom into that because I think it’s really, really important for folks to wrap their heads around the fact that this is not a crisis of personal irresponsibility, right? When I went to the University of Washington, tuition was $250 a quarter, it costs 750 bucks a year to go to the U-Dub. I could have easily made that.
David Goldstein:
It’d be about $2,500 today.
Nick Hanauer:
Yeah. And I could easily earn that in a summer of working at a McDonald’s or whatever it was, and did in fact. Today that tuition is, I don’t know, 12 or $13,000 a year for in-state tuition. And so Goldie so that’s five times [inaudible 00:11:51].
David Goldstein:
We did the math a couple of years ago where you’d have to… a minimum wage job, you could pay for your tuition at a typical public university by working a mere 53 weeks a year.
Nick Hanauer:
Yeah. Exactly.
David Goldstein:
Full time. Full time.
Nick Hanauer:
Yeah. Full time. Yeah.
Marshall Steinbaum:
And not eating for that 53 weeks [inaudible 00:12:07].
David Goldstein:
Right. At the federal, [inaudible 00:12:10]. Oh yeah, the federal minimum wage of $7.25 an hour.
Nick Hanauer:
Yeah.
David Goldstein:
You only had to work 53 weeks a year.
Nick Hanauer:
And so I think again, what’s really important to acknowledge is that the deal was that if you borrowed a little bit of money, you would go through college, get a job that paid you a substantially more than you could’ve made if you didn’t have a four year degree and you could easily pay back the loan and it would be a relatively good deal for everybody. And what happened was is that the costs of higher education increased far faster than anything, really almost anything else in life.
David Goldstein:
I want to clarify this, Nick-
Nick Hanauer:
Yeah.
David Goldstein:
… because it is not the cost that has gone up.
Nick Hanauer:
No, no, no, no. That’s true.
David Goldstein:
The cost that’s gone up gradually, it’s the price.
Nick Hanauer:
Correct.
David Goldstein:
There’s a big difference between the cost and the price.
Nick Hanauer:
Yes.
David Goldstein:
They are spending marginally more per student than they were 15, 25, 30 years ago. What’s happened is that I know in Washington it used to be that, and the reason why you got such a good deal was that 80% of the cost was covered by taxpayers, and 20% was co-
Nick Hanauer:
Was tuition.
David Goldstein:
… was tuition, and now it’s 75% of the cost is tuition, and 25% is covered by taxpayers.
Nick Hanauer:
Correct.
David Goldstein:
We shifted the cost from taxpayers onto students.
Nick Hanauer:
Yeah, as we shifted our notions of education from a public good to a private good.
David Goldstein:
Right.
Nick Hanauer:
And at the same time over the last 40 or 50 years when the student debt crisis created itself, wages even for college graduates have effectively been, they’ve been suppressed, right? As we’ve said a thousand times on the podcast, the median full-time worker today earns about 50 grand a year. If they had been held harmless by the last 40 or 50 years of neoliberal economic policy, they’d earned almost a hundred thousand dollars a year. And again, it’s super important to emphasize that this was true of college graduates too. College graduates do earn more than non-college graduates, but that does not mean that their wages haven’t been suppressed too, unless they’re in the top 1 or 2%. And so the confluence of skyrocketing prices for higher education and a generation of wage suppression is what created this crisis, not the profligate personal spending of the students themselves.
Marshall Steinbaum:
Yep. Well, all of that’s right, couldn’t have said it better myself.
Nick Hanauer:
Yeah.
Marshall Steinbaum:
I couldn’t agree with you more, and I especially like that you emphasize the price and not the cost of it because I feel like that aspect is lost a lot in the popular debate. And even frankly the academic debate about sort of why is college so expensive, you get a lot of theories about rising costs over time that don’t really fit the facts where it’s more about the pricing power of institutions and especially institutional segregation and financial aid. So the interesting thing here is financial aid supposedly makes college more progressive than it would seem otherwise, so the story goes that the tuition that they state as a sticker price is not nearly what everyone pays, everyone gets a discount. And the discount that you get supposedly is commensurate with your ability to pay, so less well off students get a bigger discount from universities so they can actually attend. So why are we so worried about the headline sticker price as opposed to what people actually have to pay to attend?
The fact is that higher education, financial aid and what I would call price discrimination from an economic perspective has gotten more inegalitarian over time. So it’s not so much the least well off students who get the biggest discounts, but rather the students who have better outside options get the biggest discounts and those tend to be the better off students. So if you look at who’s actually getting financial aid, it’s the people who the institutions think, “Oh, they’re somebody who we really want on campus.” For one reason or another, for example, that they come from a advantage family. They have other options of where they could go, in order to get them to come here, we need to give them a nice incentive in the form of financial aid. That so called merit aid really is about distinguishing sort of who has other options from who doesn’t have other options.
Meanwhile, poorer students who generally have fewer other options pay full rate or close to it. So there’s all these ways that higher education has become more like a business, as you yourself said, the ethos has been transferred from the public sector where it’s providing a public good that benefits the population as a whole, and that everyone should have access to at a reasonable price towards a private good where it’s like, “Well, we’ll charge however much we can get out of each and every student.” And who knows where the money goes? I mean a lot of it goes to administrator salaries and other things that don’t really have that much to do with the quality of the education.
David Goldstein:
That’s all very well and good Marshall, but what about the moral hazard? I mean these are mature 18 year olds making the decision to go tens of thousands of dollars into debt. Why shouldn’t we hold them to it?
Marshall Steinbaum:
You know who else are mature 18 year olds making decisions? That would be state governors and state legislators and members of Congress and the other people who are actually responsible for the policy failure.
Nick Hanauer:
Yeah.
Marshall Steinbaum:
I mean the whole story that I was describing earlier about how state legislatures have defunded institutions, administrators have re-engineered institutions to be based on tuition and private payments, and Congress has benefited from the so-called revenue positive increase in the student loan premium. All of that is the real moral hazard, that is basically using the misery of the population to serve the interests of the elites who roll over it. And that’s where we should be focusing our attention and [inaudible 00:18:09] and judgment as to the bad decisions and self-interested decisions that led to this current student debt crisis and the need to [inaudible 00:18:16].
Nick Hanauer:
Yeah. So Marshall, you were telling us earlier a little bit about the role that student debt plays in Congressional accounting and how Congress has played games with student debt in order to give more tax breaks to rich people. Describe that.
Marshall Steinbaum:
Yeah, I mean those Congressional Budget Office forecast in the mid 2000s that increasing graduate school lending, so for undergraduate loans you can only take out a certain amount of debt per year. And there’s also a total cap for lifetime undergraduate loans that limits the degree to which the universities can do what we’ve all been discussing. So they’ve definitely increased tuition, they definitely have tailored financial aid in order to extract the maximum amount that students are willing to pay. That maximum amount is limited at the undergraduate level by the statutory loan limits in the undergraduate lending program. Congress removed all of that in the graduate lending program, the so-called unsubsidized student loans.
The argument being that professional degrees necessarily will pay for themselves in the form of higher earnings. So in effect, and also that they’re more expensive to administer the program, so they shouldn’t be limited as to how much students can borrow. That’s only going to deter students from obtaining these degrees and limit the quality that institutions can offer because they can’t charge more tuition than the loan limits allow for. If we lift those loan limits and let institutions charge whatever they want for graduate programs, then supposedly we’ll get more human capital in the population. The real reason as you’re alluding to it, and as I said earlier is if you ignore the fact that people don’t repay student loans, then that looks like a great lending opportunity for the federal government, they’re making money.
Nick Hanauer:
It’s a good business.
Marshall Steinbaum:
Yes, exactly.
Nick Hanauer:
It’s the profit center.
Marshall Steinbaum:
Right. Yes, and universities have definitely seen it that way, so I mean I can just tell you firsthand institutions think, oh, master’s programs and graduate education is a cash cow because we can charge whatever tuition and they can take out whatever loans, loans of whatever size to pay for it. You professors and departments and colleges and so on create as many masters programs as possible and market them to professionals in our local area, so that we can say, “If you come and get this degree and go into $50,000 of debt or a $100,000 of debt to get it, then you’ll get an advantage in your career.”
And I mean as I said, universities have taken up that opportunity with [inaudible 00:20:48]. So that’s why you’ll hear… and this is then turned around to sort of blame student borrowers through the Republican Congress people who are like, “Oh, you’re getting a master’s degree in lesbian dance theory.” Which sounds like an interesting subject, but leaving that aside, it’s blaming the fact that people with high balances sort of wasted their time in graduate school. It’s, no, that’s the institutions who saw that as a profit making opportunity and marketed themselves very aggressively in order to soak in revenue on the basis of that.
David Goldstein:
If you get a master’s in education instead of an MBA, I mean you deserve to live the rest of your life in debt, right? Because you’re doing something useless, like teaching children.
Marshall Steinbaum:
Right. Yeah, so I mean there’s basically what I would call the informal credentialization that was what I was just describing, which is let’s kind of convince people that they need this master’s degree in order to get professional advancement. Then you have formal credentialization, which has definitely happened in the education side, which is you cannot be a teacher unless you have a master’s degree or the layers of higher education that are required in order to obtain this degree. And there’s kind of an interesting political alliance, certainly the universities are strongly behind that kind of thing. And then the workers themselves in some instances will think, “Oh, the more credentials we require, the more protected we are from labor market competition in effect, so we want more credentials because that will protect our wages.” And to my mind, that’s a settlement that really screws over workers in the long term.
David Goldstein:
Yeah.
Marshall Steinbaum:
Usually when that kind of formal credentialization is passed, it grandfathers in the people who don’t have the credential, but already have the job that they’re saying you need the credential for. And that’s really a sort of inside outside game in labor market regulation that I think is not prosocial at all, but you can see why it would happen, I mean in a world where there’s wage suppression all over the place, workers want whatever claim they can have to living a decent life.
David Goldstein:
Yeah. Of course.
Marshall Steinbaum:
And professionalization in the form of formal credentialization can be a form of that.
David Goldstein:
And this isn’t just theoretical Marshall, we’ve seen some studies that have looked at job markets when it’s a tight labor market and you see the job ads, the credentialing requirements go away because it’s hard to hire people, so now you’ll take people without these credentials, but when unemployment is up, suddenly [inaudible 00:23:20] everybody needs me a master’s degree.
Marshall Steinbaum:
Yeah. Okay, so I’m going to plug myself for a second if you’ll forgive me, you’re talking about papers by economists Modestino, Shoag and Ballance. I did a paper about The Great Recession’s effect on student borrowing that basically sort of builds on that intuition because as you say, they [inaudible 00:23:40] when the labor market was very bad at the height of The Great Recession, then all these credential requirements were put in the job ads to try to screen out people. So basically you have a lot, you can imagine there’s a long line of workers applying for every job. The employers are able to pick and choose which workers they hire and they choose the ones that are highly credentialed. Then the same author showed that effect was diminished when the labor market improved later on in the 2010s. Basically what I show in that paper with my co-author Sergio Pinto is The Great Recession had a major effect on people taking out student loans, but I mean the student debt crisis was already underway before it happened. And partly as a result of the lifting of graduate loan limits that we were discussing earlier.
But The Great Recession definitely made it a lot worse, and the pattern is very consistent with the Modestino, Shoag and Ballance credentialization story where you see workers say, “Oh, if I need more credentials to get a given job, then I’ll take out more student debt to pay for those credentials.” Or alternatively the same job is only going to be available to workers with more credentials, and it’s the same job, especially the same salary is only going to be available to workers with more credentials. That means that if you need student debt to get those credentials, the salary’s no higher, so you’re not going to be able to pay back that higher balance of student debt. And that dynamic is very much at the heart of the run up of student debt in the last 15 years or so.
Nick Hanauer:
Yeah, super interesting. Okay, so we need to pivot this conversation to the way in which this policy has collided with the neoliberals who have dominated policy making, really up until the Biden administration because this student debt thing has made certain people’s heads explode, right? And that they’re absolutely freaking out for all the usual neoliberal reasons. And it’s just fun to acknowledge that the same people who are screaming about the deficit impact, the moral hazard and the inflationary impacts of relieving a little bit of giving a break to middle class people have almost nothing to say if you give rich people a tax break, right? It’s just astonishing that one thing is inflationary, and the other thing creates growth, even though they’re the same, but they go to different classes of people. So let’s talk about our friend Jason Furman’s views and Jason represents I think a lot of people on the neoliberal left who just think this is a terrible thing.
David Goldstein:
That it’s inflationary.
Nick Hanauer:
Yeah.
David Goldstein:
Explain, we’re going to use your high priced credentials here for a moment as an economist and tell us, is student debt relief inflationary as Jason Furman insists?
Marshall Steinbaum:
No. I mean, definitely the policy as announced is not inflationary because on the one hand they’re saying, “Well, we’re going to cancel debt.” But on the other, they’re going to end the repayment pause. So if both of those things happen, I would say the net effect of that is probably actually deflationary. The repayment pause is more inflationary than the cancellation of debt. That’s my two cents. It’s basically impossible to pinpoint exactly what the net effect is going to be, but the idea it’s inflationary is ridiculous. The other reason, I mean or at least one other way that we know that the people forecasting inflation are not right, is that they were saying the opposite prior to the pandemic. So they were like, at that time the whole line was student debt cancellation is regressive. So the money would only go to rich people and rich people don’t spend money, they only save money. So it would actually be a deflationary transfer because you’re basically converting what would otherwise have been federal spending into private saving, reducing aggregate demand, and thus deflating the economy.
And I don’t think that argument was very good either, but for the purposes of this conversation, it’s just the diametric opposite of what they’re saying now. And the reason why they would kind of pivot a 180 degrees to make diametrically opposing points against student debt cancellation is because they’re trying to tailor their perennial argument and real objections against the actual policy to whatever is the sort of economic flavor of the day.
David Goldstein:
Correct.
Marshall Steinbaum:
And right now the flavor of the day is inflation.
David Goldstein:
Inflation. Right.
Marshall Steinbaum:
[inaudible 00:28:09] all of this worsens inflation. Okay, well it’s not serious economic analysis, it’s addressing up prior political and ideological views within the garb of supposedly dispassionate economic analysis. And as an economist, I find that offensive because it’s I don’t want my discipline perverted to somebody’s political priorities.
David Goldstein:
What? Are you telling me there’s politics in our economics?
Marshall Steinbaum:
I mean shocking though it may be, unfortunately yes. And I’m doing everything I can to rid ourselves of politics in economics so we can get back to the one true economics of justifying egalitarian policies and making the economy work for everyone.
David Goldstein:
Right. So let’s be clear about who this is benefiting because that argument that, “Oh, it’s rich white people who are benefiting the most.” Let’s talk about this specific plan that Biden announced, it’s $10,000 in student loan debt for everybody earning less than $125,000 a year. And 20,000 for those who received Pell Grants, which are grants to low income students. So is this disproportionately rich white people who are benefiting? Or is it disproportionately lower income graduates, students and people of color?
Marshall Steinbaum:
Yeah, I mean I think there’s been a lot of misinformation in the public debate about sort of who has student debt, the kind of defenders of the status quo want to say that student debt is the province of elites and the broad population of non-student debtors are the true working class, blue collar workers and why should they pay for elites to go to college? And that kind of mindset has been critical for example, in defunding public higher education, which in fact operated to make higher education much more accessible to a broader swath of the population could be re-conceived as a giveaway to the rich paid for by the working class as argued by people who definitely are not working class themselves. The reality of who has student debt is I would say very much in the working class, especially in the young working class. So this, the process of credentialization has meant that for younger cohorts entering the labor market, they just need more higher education credentials and thus more student debt to take on any given job.
The policy as announced limiting the total amount of cancellation probably skews… so I guess the question is who’s excluded from the plan? People with higher balances generally tend to have higher incomes, but they’re also less able to pay off their loans. So if you look at who has trouble repaying, it’s people with higher balances, not people with lower balances, I mean there’s some ambiguity about that. I also think it’s crucial to keep in mind who doesn’t have student debt, so the population of student debtors is very heterogeneous as I think you were alluding to. Very racially mixed, disproportionately Black, disproportionately working class among younger people. What that points to is that the population of people who don’t have student debt is even more heterogeneous, namely it includes people who had never anything to do with college, who probably are at the lower end of the income distribution.
And it also includes people who had a lot to do with college, who didn’t need to take on student debt to pay for it, and that’s people at the upper end of the income distribution. So I think the key sort of indicator that shows that student debt isn’t what these defenders of that status quo say it is, is who is more likely to not have student debt? Are the people who don’t have student debt, working class people who never had higher education at all, or the people who don’t have student debt, rich people whose families were able to support them through higher education and potentially graduate school as well. Increasingly it’s people in the latter group, so that belies the idea that student debt cancellation is a giveaway to the rich. The last thing I want to say is that the income [inaudible 00:32:09] for getting the 10,000 and $20,000 worth of cancellation is not a great policy.
I mean frankly unnecessary, and I view it as kind of bowing down to these sort of political narrative that student debt cancellation is a giveaway to the rich and sacrificing the efficacy of the policy to that political imperative because the education department doesn’t know how much income each of the borrowers earns, so they need to ask individual borrowers to give them their tax return to attest their income. A lot of borrowers are going to be reluctant to do that given the rightful suspicion about data leakages, I mean Facebook was [inaudible 00:32:47] scraping income data from the Department of Education’s website, for example, and just the bureaucratic onerousness even if you didn’t worry about the security, just the onerousness of having to give your tax return to a different federal agency in order to prove your worth. That’s going to exclude more people who make less than $125,000 who should benefit from the policy, and on paper do.
That’s going to exclude more of them than it include… oh I’m sorry, it’s going to exclude more of them than it excludes of people who make more than $125,000 and should not get the policy. I mean even I would say you could have announced a policy that was like, “You only get this if you earn less than $125,000.” And then do absolutely nothing to enforce that aspect of the policy, that would be better than making people give the government their tax return. I’m not worried about the person who makes more than a $125,000 kind of sneaking through the door of not having to verify it. I’m more worried about the lower income people who will be deterred by the bureaucratic process.
Nick Hanauer:
Interesting. Okay.
David Goldstein:
Right. It was a political expediency but bad policy.
Nick Hanauer:
Yeah.
Marshall Steinbaum:
Yes. And I should say it’s also at odds with the administration’s own policy, just in April of this year, the OMB issued a policy that was a directive to federal agencies saying all of the sort of hoops that you make beneficiaries of federal aid jump through in order to get it, do what you can within the law to diminish those barriers because we know that that has the effect of excluding people who should be included, that is to say it’s racially disparate. I mean it’s just not a good policy to have these onerous bureaucratic processes to get federal aid. So the OMB’s own policy is saying those should be mitigated to the extent that’s consistent with the law. And this is saying, well, basically we should have these onerous policies to solve our political problem. That’s the reason why preexisting bureaucratic barriers to accessing aid are there it’s it solves some sort of political problem. And so the net effect of that is a less efficacious policy as you just said, and they’re replicating that exact trade off, I feel with this income test for student debt cancellation.
David Goldstein:
Yeah. It also, it limits the cost of these programs in the CBO analysis if you make it more difficult to access.
Marshall Steinbaum:
Yeah, to access it but it’s well, why is that the desideratum of what our policy should be?
David Goldstein:
Right. Uh-huh.
Marshall Steinbaum:
I mean I guess Congress cares about that so it’s, well, the administration has to care about that to get their policies through Congress. In this case they don’t have to get their policy through Congress though so it’s… and all of that is just yet more neoliberal ideology informing CBO, thus informing Congress and so on which we need to get beyond.
Nick Hanauer:
Marshall, let’s talk for just another couple of minutes about the way in which this policy contravenes, the sort of standard neoclassical neoliberal economics, because at the heart of these disagreements, I think is the repudiation of a way of understanding economic cause and effect that a lot of people are clinging to and defending. It just feels like that’s why their folks are freaking out is that it was just like raising the minimum wage to $15 an hour. If it turned out not to kill jobs, it wasn’t the policy that was the problem, it was the fact that doing so contravened economic theory in a way that shattered 45 years of orthodoxy.
Marshall Steinbaum:
Yeah. I couldn’t agree with you more in that statement, I think that’s really going on when we see these sort of Twitter meltdowns of neoliberal economists, it’s not even the policy as we’ve been saying, the $10,000 is not nearly as [inaudible 00:36:38] as it needs to be or should be given how much debt isn’t going to be repaid, it is really about the ideology.
Nick Hanauer:
Yes.
Marshall Steinbaum:
The ideology in this case is, I would say meritocracy, the idea that social status is driven by merit. That is to say something that individuals either have control over is at least individually determined as opposed to inherited. And the higher education industry as it exists is basically designed to ratify meritocracy.
Nick Hanauer:
Yeah.
Marshall Steinbaum:
It’s people of high social status have more higher education and fancier degrees from fancier institutions, and that’s how you know that they deserve to be on top as opposed to the fact that they inherited their position.
Nick Hanauer:
Yeah.
Marshall Steinbaum:
And so this idea that the higher education is not serving that function, in fact it has nothing to do with merit, certainly not sufficient, it doesn’t increase earnings to the degree that people are able to pay off their loans kind of causes that entire house of cards to collapse.
Nick Hanauer:
Right.
Marshall Steinbaum:
And a lot of economists in particular, since they have more higher education than anyone, have a lot of… and also believe this sort of theory of human capital, as it’s put in the economics terms, it’s you can invest in your future. I mean we could go into the sort of intellectual history of the theory of human capital because I think it’s informative about why we see this sort of outrage at the idea of student debt need to be canceled, but all of this is I would say constitutive of what Beth Popp Berman has called the economic style in her book, Thinking Like an Economist. If you’re an economist, then you have to believe the world works in such and such a way, namely that the people who rule over the rest of us deserve that position by virtue of their individual merit and the way we know what their individual merit is, is their degrees and their status within the sort of hierarchy of higher education. And student debt cancellation just as I said causes that whole house of cards to fall down.
Nick Hanauer:
That’s right. In the same way the $15 minimum wage made another part of it all fall down.
David Goldstein:
Yeah.
Marshall Steinbaum:
Yeah.
Nick Hanauer:
Right?
Marshall Steinbaum:
Yes. Exactly.
David Goldstein:
I think you put your finger on it, Marshall, it’s human capital theory that is at the heart of this and they feel the threat this-
Marshall Steinbaum:
Right.
David Goldstein:
It’s a major part of the neoliberal ideology and people have to understand it wasn’t always that way. Our public education systems, both K-12 and college and universities were established on the theory that education was a public good, not a private one.
Marshall Steinbaum:
Right. And it’s so necessary to bring that up because I feel like the usual response that I get when I say something like the theory of human capital as false, the response I get from economists is, “Are you saying that education doesn’t matter at all?” It’s, no-
David Goldstein:
No.
Marshall Steinbaum:
… you’re the one who says that there’s only one possible way of it mattering, which is that it increases people’s earnings and creates human capital or whatever. I’m saying that it is too valuable to be dirtied by your silly theory of human capital.
David Goldstein:
Yeah.
Marshall Steinbaum:
It’s much more important to society than this idea that it increases individual earnings. In fact, it’s necessary to live in a civilized world and to have a functional society.
David Goldstein:
Right. And I think a [inaudible 00:39:47] makes that point very well, that it’s much more than just increasing your individual productive capacity and education gives you the capability to do all types of things in life that you find meaningful for participating in the community, participating in politics, enjoying arts and literature and intellectual pursuits that go well beyond just your role as a cog in the economy.
Nick Hanauer:
Yes.
Marshall Steinbaum:
Yeah. And I want to emphasize that point and specify it in one particular way, which is the function of what I’ll call the non-traditional student within the political economy of higher education. So non-traditional student in higher ed lingo means somebody who is above traditional college age, possibly not attending full time and has done other things in life between high school and college, whatever those might be and you could layer on other stuff like having a family, having a full time job. That non-traditional student, the higher education exists to serve them in the sense that they might have intellectual curiosity and interests that would bring them into a higher education institution to vindicate those interests, and those institutions should be structured in order to accommodate students like that. So I’m thinking of somebody who’s interested in getting a degree in history, because they didn’t go to college when they were of traditional college age because they had to work or whatever reason in their family background.
Now they can afford the $750 a year of tuition that Nick paid at U-Dub back in the day because they want to learn about history, that’s great. Higher education should exist to serve that kind of student. You’re not going to serve that kind of student if the tuition is whatever it is, $12,000 a year at U-Dub. Now, even if they were in-state instead now the non-traditional student in the political economy of higher education is an untapped market, so if you think about institutions thinking, “Okay, well we’re already getting all the traditional students through the door. They’re all going to college because we passed the law at the state legislature that says you can’t graduate from high school unless you go to college.” And some jurisdictions have that.
We need more customers, where are we going to go? The non-traditional student, let’s convince that person that they actually need further degrees in order to get a raise on the job. And so they’ll pay $12,000 a year or whatever to get that kind of degree. So I feel like that idea that higher education is a public good, you can especially see that in the way that institutions treat non-traditional students, whether they’re available to them or alternatively, whether that’s a consumer market that needs to be tapped and [inaudible 00:42:30] for all that it’s worth.
Nick Hanauer:
Yeah, absolutely. So while we have you and we are going to digress just a tiny bit, can we just talk for a minute about the imperfect yet remarkable accomplishments of the Biden administration over the last two years? Because when you put it all together, The American Rescue Plan, The Infrastructure Plan, the IRA, the CHIPS Plan, the anti-monopoly executive order, student debt cancellation, it is an astonishing set of accomplishments. And what I think is so important to understand is not just the size of them, which in aggregate are bigger than almost anything anyone’s accomplished in generations, but more particularly that they are almost all a direct repudiation of the neoliberal trickle down policy agenda embraced by frankly, administrations of both parties for the last 40 years.
Marshall Steinbaum:
Yeah. I mean I would definitely emphasize that latter thing as a major accomplishment.
Nick Hanauer:
Yeah.
Marshall Steinbaum:
I mean when we sort of saw the Senate elections shake out in December of 2020, what has happened since then is as much as could reasonably have been forecast to happen and possibly more given that-
Nick Hanauer:
Yes.
Marshall Steinbaum:
… that balance of power. I work on student debt and antitrust as my two main functions. And those are the two areas that really do vindicate the point that you’re making, that it’s not just sort of they’ve been active, but they’ve been active in such a way that has really belied the sort of ideology that has constrained previous administrations and specifically democratic administrations. I would also say to the degree that the administration has had failures, it’s by adhering too closely to that ideology.
Nick Hanauer:
Mm-hmm. Yeah.
Marshall Steinbaum:
So that would be my criticism of some of the provisions of the Build Back Better Act that [inaudible 00:44:29] legislated is that they kind of thought they could sneak those in within the paradigm of neoliberal economics and getting a lot of economists to say, “Oh, this is actually good for economic growth.” Or something like say, Paid Family Leave or Child Tax Credit.
Nick Hanauer:
Yeah.
Marshall Steinbaum:
That’s a great disappointment that that was not made permanent, but if you look at sort of the terms in which the argument was made for making it permanent, it was not about mobilizing a mass base, instead it was about getting all the economists to say, “It’s a good idea.”
Nick Hanauer:
Yeah.
Marshall Steinbaum:
And lo and behold, all the economists saying that your policy is a good idea doesn’t mean that you get what you want.
Nick Hanauer:
Yeah.
Marshall Steinbaum:
And I think that kind of speaks to where the politics should go and probably will go. I mean I hope it’s not too late in the grand scheme of democratic backsliding and rampant fascism and everything, but I think the lessons of this administration are positive in the sense of vindicating a move away from neoliberal ideology that, that’s how you can be politically successful.
Nick Hanauer:
Would you have predicted this of Sleepy Joe two years ago?
Marshall Steinbaum:
Oh, that’s a good question, would I have predicted this two years ago? I think-
Nick Hanauer:
I wouldn’t have.
Marshall Steinbaum:
Yeah.
Nick Hanauer:
I wouldn’t have.
Marshall Steinbaum:
The student debt cancellation was definitely a sort of left priority within the 2020 Democratic primary. I mean I guess the turning point for me was when other elected officials embraced the idea of administrative cancellation, that it doesn’t have to pass Congress, which is right, I mean as is just a legal matter, it’s definitely right. That kind of… because what I feel like the administration kind of wanted to do earlier on was say, “Oh, well, we would’ve loved to cancel student debt, but we couldn’t get it through Congress.” Or something like that. And in fact, you had Democrats in Congress condemning the bill, I mean I think that was pretty politically stupid of them to do that.
Nick Hanauer:
Yeah.
Marshall Steinbaum:
But you had a sort of backlash in Congress when the policy was announced. It took a lot of work by people operating very much on the inside to move the idea of executive cancellation kind of into the realm of the possible.
Nick Hanauer:
Right.
Marshall Steinbaum:
And then I would say, especially to get an outside constituency to tell the administration, not only do you have the power to do this, but if you don’t, we will be pissed.
Nick Hanauer:
Yeah.
Marshall Steinbaum:
Because there was real constituencies that they care about that said that, that I don’t think they were expecting. If I’m going to psychologize the Biden administration as though were a coherent person with thoughts and so on, it’s like they perceive student debt cancellation as being a priority of the left of the party that did not win the primaries. And that had a influential, but not overwhelming power in Congress that they could just not implement their priorities. And then what happened was constituencies that are not affiliated with that interest within the party, but do have a lot of sway with the administration were like, “No, no, no, we want this too. You got to do it and you have the power to do it, so don’t tell us that Congress didn’t give it to you because we’re not going to buy that.” And they were like, “Oh, okay. We do actually have to do it now.” And I think that was sort of the key turning point, and that happened I would say in May or June of 2022, so not all that long ago.
Nick Hanauer:
Yeah. Super cool. Well, with one final question we’ve asked you before, but you can answer it in a different way. Why do you do this work?
Marshall Steinbaum:
Oh, I wonder how I answered that before. To make my enemies angry is the honest answer.
Nick Hanauer:
That’s a perfect answer. It’s a perfect answer, let’s just go with that, I love it. [inaudible 00:47:52].
Marshall Steinbaum:
So all of the economists meltdowns on Twitter that was just fuel for my fire.
Nick Hanauer:
Okay buddy. Well, it was great chatting with you and we’ll talk soon, I hope.
Marshall Steinbaum:
Yes, absolutely. Good to be on as always.
David Goldstein:
So a lot in that conversation with Marshall, always fun, always informative, but I think one thing we didn’t spend enough time on in that conversation, Nick is that this is yet another middle out moment from the Biden administration.
Nick Hanauer:
It is.
David Goldstein:
That it’s not just a policy that is counter to the neoliberal policies that have dominated our politics for the past 40, 50 years, it’s also a narrative that runs counter to that neoliberal narrative. Biden has been very consistent in this on many of these programs. This is a policy that is aimed squarely at the middle class, and it is aimed at the middle class because as he repeatedly says, “That is how you build an economy, from the bottom up and the middle out, not from the top down.”
Nick Hanauer:
Yeah.
David Goldstein:
And that narrative shift, I think you would agree is as at least as important as the economic policy shift.
Nick Hanauer:
Yeah, absolutely. And there’s just no way to underscore enough how profound the shift has been from, for example, even Obama to Biden, right?
David Goldstein:
Right.
Nick Hanauer:
Is that President Biden and this Democratic Congress have embraced a completely different way of understanding economic cause and effect from believing that if you make the rich richer jobs will be created and the economy will grow and everyone will do well to believing on the contrary that a thriving middle class is the source and cause of economic prosperity in market economies. And the student debt cancellation is yet another manifestation of that strategy and narrative that these guys have implemented over the last couple of years. And again, as we said in the conversation with Marshall, it just it’s stunning how much they have accomplished and even more stunning how consistent their approach has been to rewiring the economy in a way that will actually deliver faster economic progress and a broader economic progress.
Why? Because those two things are inextricably intertwined, that the more broadly the policies are effective that more people you include in the economy in more robust ways, the better it will go, which is the core of how to understand economic cause and effect.
David Goldstein:
Right.
Nick Hanauer:
The economy is people, and the better people do, the better the economy does. And all the squawking from the right and the neoliberal left about how this is inflationary and bad and debt and all this other stuff is really just cover for the embarrassment of having to admit that the neoliberal framework they’ve been employing for a generation is just been wrong.
David Goldstein:
And what it’s telling Nick is that, you can see some of the biggest, loudest critics of student debt forgiveness are former Obama administration economist like Jason Furman and Larry Summers who take this as a pers-
Nick Hanauer:
Who could have done this.
David Goldstein:
But they didn’t-
Nick Hanauer:
But they didn’t.
David Goldstein:
I will say, I don’t know if it was planned, if it was well thought out, but the Obama administration made this possible by changing the way we do student loans from federal guarantees of private bank loans, to federal loans that are administered by private banks. The fact that this could be done administratively is because these are federal loans. The federal government is the lender, but they just rearranged the deck chairs on the student debt Titanic in a way that they didn’t imagine being used in the future, they did not address this
Nick Hanauer:
That’s right.
David Goldstein:
And I think it’s really important again, to get back to the narrative side of it. It is a different way of talking about the economy, actually makes it possible to put forth these different economic policies. The fact that he’s framing it in this middle out narrative is just as important as what he’s doing not just because it helps sell it to voters, but because it makes future policies and future rejections of the neoliberal agenda, all the easier in future years and coming administrations.
Nick Hanauer:
That’s right. And so if there’s a message to our listeners, it is to take this middle out economic narrative thing seriously, it’s not just an alliteration or it’s not a slogan, it’s a way of rewiring how people see economic cause and effect. And if you believe that economic prosperity is a product of making rich people richer, you will adopt a certain set of policies. If you believe that economic progress is caused by a thriving middle class, you will adopt an entirely different set of economic policies, and that’s the name of the game here. And in fact why we have the podcast, so…
David Goldstein:
Right, Nick, go back to our very first episode, it’s about storytelling.
Nick Hanauer:
It is.
David Goldstein:
Economics is a story we tell ourselves that explains who gets what and why.
Nick Hanauer:
Exactly.
Speaker 4:
Pitchfork Economics is produced by Civic Ventures. If you like the show, make sure to subscribe, rate and review us wherever you get your podcasts. Find us on Twitter and Facebook at Civic Action and Nick Hanauer. Follow our writing on Medium at Civic Skunk Works, and peek behind the podcast scenes on Instagram at Pitchfork Economics. As always from our team at Civic Ventures, thanks for listening. See you next week.