Commentators routinely excoriate student debt for a litany of social ills, such as worsening financial instability and inequality and causing debtors to delay important activities such as marriage, having children, and saving for retirement. Given such damning accusations, constructing a humane, pro-student argument for expanding student debt may seem a daunting task. However, John Brooks artfully manages to do just that in his recent essay, The Case for More Debt. In it he provides a winning argument that more debt, not less, would improve education outcomes and offer needed support to low- and middle-income students.
Brooks focuses on federally-financed student loans that are eligible for income-driven repayment (IDR) programs. To lay the foundation for his argument, he deftly summarizes the various IDR program structures—each with its own acronym and set of complex lending terms. Although each program is slightly different, they share several essential features, including that 1) the borrower need only repay a fixed percentage of discretionary income, and 2) after a certain number of years the unpaid portion is fully forgiven. Taken together, Brooks reasons, these attributes of IDR transform such borrowing from true debt into something more akin to a tax.
As Brooks explains, true debt exhibits several specific characteristics, including the borrower’s promise to fully repay a fixed principal amount, regular interest payments, and legal recourse for the lender in the event of default. In contrast to true debt, a federal student loan borrower under an IDR program does not guarantee that she will repay the full loan principle. Further, the government lender cannot enforce the full value of the debt against her. Instead, the borrower promises to pay a set percentage of her discretionary income for a certain period of time. Lacking essential debt features, these payments more closely resemble a tax.
Reconceptualizing IDR as a tax rather than debt frees the borrower, and society more broadly, from the restraints of debt-aversion. Unlike true debt, a borrower needn’t fear that IDR-eligible debt will drive her to financial ruin. Instead, taking out greater debt is merely a matter of agreeing to a higher tax rate in the future, or payment of such a tax for a greater number of years.
Freed from many of the negative consequences of debt, Brooks argues that the federal government should increase the amount of undergraduate loans eligible for IDR treatment. As he explains, federal student loans for undergraduate borrowers are currently capped well below the cost of attendance—at $27,000 total for four years of college. Undergraduates who are unable to fund their education through relatively safe and low-interest federal loans must find other ways to finance their education, typically via family savings, work, or private loans. At the extreme, the dearth of affordable lending drives some students to leave school altogether. Such outcomes are undesirable. Instead, Brooks argues that the federal government should offer loans sufficient to cover the average cost to attend a public four-year university, which he puts at $15,000 per year or $60,000 over four years.
Brooks concludes with several caveats, including that students might fail to take full advantage of expanded lending because they continue to view the borrowing as true debt. While this psychological barrier may exist for some, it should not affect those students who currently borrow private loans in addition to the maximum federal loans. Thus, even if debt-aversion lingers for some, Brooks’ proposal to raise the cap on IDR-eligible debt would still help a substantial number of student borrowers.
I found the comparison of IDR programs to a tax to be compelling and thought provoking. In particular, I wondered whether other categories of government payments could offer additional apt comparison. For example, IDR program payments also bear striking resemblance to a user fee. Unlike a tax, a user fee is undertaken voluntarily, in exchange for a benefit provided exclusively to the payer, for a price that in some way relates to the benefit provided. The income-based structure of IDR repayment brings to mind income-based fees such as Medicare Part D or civil court fees (which are reduced or waived via in forma pauperis petitions). Considering alternative conceptual labels, although perhaps somewhat semantic, could offer a benefit in the form of marketing appeal. That is, some might prefer a future fee to a future tax. Of course, such a response is pure tax-label aversion, as the end result is the same.
In all, Brooks offers a lucid, persuasive argument to address a crucially important social problem. In the essay, he does not (and need not) address other reform possibilities such as increasing grant aid or government funding of public universities, or reducing the cost of college attendance. Rather, he takes education costs as they are and offers a realistic, cost-conscious, and bipartisan solution with a genuine chance of improving people’s lives.