Student Loan Debt Forgiveness

EconBuff #40 with Rex Pjesky

Dr. Rex Pjesky talks with me about student loan debt forgiveness. Dr. Pjesky walks us through the details of student loan debt forgiveness plan. We discuss the potential mechanisms by which the cancelation of debt could help the economy. Dr. Pjesky argues that there’s no mechanism through which the cancelation of debt would impact supply side concerns. Dr. Pjesky then goes into detail about how cancelling debt might impact demand. Dr. Pjesky addresses inflation and explains the implications for inflation depend on how the debt forgiveness plan is financed. Finally, Dr. Pjesky discusses the potential for this to become Free College for All, and we explore the question of if any of this even matters given that the government has not been requiring people to pay on their loans since 2020.

Photo by Jeswin Thomas on Unsplash

Transcript:

Stitzel: Hello, and welcome to the EconBuff Podcast. I'm your host, Lee Stitzel. A little bit of news before we get started on this particular episode. We've got some new logos dropping. I'll put those up on the website. You'll see them on this episode, especially on the YouTube side. We'll get details of that for you guys. We've got some changes here, very exciting. But our topic today is student loan forgiveness. I've got Dr. Rex Pjesky with me today. Rex, thanks for joining me.

Pjesky: Thanks for having me again.

Stitzel: So, big news, obviously earlier this year --- student loan forgiveness. Before we get into the economics of it, can you just give us, like, some handles on the policy itself?

Pjesky: Sure. I mean, student loan cancellation, or the, you know, student loan crisis, as some people have described it has been something that’s, sort of, been at the front of our attention for several years now. But, you know, this year President Biden finally announced a fairly specific policy as a remedy for the student loan crisis. And the details of what he had announced is basically this --- everybody gets $10,000 off of their student loan balance. I'm not really exactly sure how it's going to work; but everybody's going to get $10,000 worth of (let's just call it) relief in some way. If a student was on a Pell Grant while they were in school, then that goes up to $20,000. There are income limits to this. So, an individual that makes over $125,000 a year would not be eligible. And a couple or a household that makes over $250,0000 a year would not be eligible. So, that's the basics. You know, a lot of people wanted more. You know, and a lot of people wanted less. You know, but, you know, on the more side, you know, some people were calling for complete debt cancellation. A lot of people were floating around a $50,000 figure. But the $10,000 and $20,000 with the income limits is what the Biden Administration announced.

Stitzel: It's a little odd, right? Because I think we have this image sometimes of student loan debt as if, you know, there are these massive numbers. But it's almost certain that for basically all people who have student loan debt, $10,000 or $20,000 would be a substantial portion of that. You know, but there's an element here where the people that are taking out student loan debt, like, these are not, you know, random people. It's not representative of the overall population. So, what's your impression then of: what kind of impact we'll see out of student loan forgiveness like this from that perspective?

Pjesky: Well, the, you know, sort of, the (for lack of a better word) justification of the debt forgiveness program is that, you know, people who are, you know, generally, relatively young ---not everybody, but people with student loan balances ---- are generally going to be people in their 20s or their 30s in a disproportionate, you know, sense. You know, obviously nobody that’s fifteen has student loan debt. And, you know, not very many people who are, like, 65 maybe has student loan debt either. So, you know, the people with student loan debt are going to fit certain demographics I think more than others. So, first of all, they're going to be people that have either been to college or completed college. They're going to tend to be on the young side of middle age on average. And again, that’s a generality. There's, you know, wide distribution of ages here. And, you know, they’re generally going to be --- and this what studies have shown, [that] they're generally going to be --- higher income individuals that have taken out the loan. You know, every single study that I have seen leading up to this policy has suggested that people with student loan balances tend to have higher incomes than people without. And again, that is a generality. So, one of the criticisms that people have made against, sort of, broad-based student loan forgiveness is the fact that these people generally have higher incomes than average anyway. So, why do you want to give that group this particular, kind of, you know, relief? So, the program that Biden suggested is quite interesting to me in that sense in the details. So, it does have income limits. So, if you make over a quarter million dollars, if you're a whole household, if you're a couple, you don't. You're not eligible. Single person [making] $125,000 --- eligible. So, that's, sort of, going to address that complaint a little bit. The other major provision in it that is, I think, meant to address those concerns is the fact that people who were Pell eligible. A Pell Grant, of course, is help from the federal government for poor income students to pay for school. People who were Pell eligible get more relief. And so, those two things might change the analysis on how progressive or regressive student loan forgiveness is. But I don't think it’s going to change it very much. I read somewhere where, you know, about 95% of student loan borrowers (people with student loan balances) are eligible for this. So, you know, only 5% of people that have student loans are above those income limits to begin with. So, introducing the income limits shouldn't change the analysis of who benefits and who doesn't benefit from this very much. The Pell requirement is also kind of interesting to me, because, you know, just because somebody's low income when they're 18 (or come from a low-income household), [then] that shouldn't necessarily translate into them being low income after they've graduated; because one of the points of going to school is to raise your income to begin with. So, that was an interesting provision to me when it came out. I know the correlation is still there; but it's, you know, if higher education works the way that it should be, [then] the correlation should be rather weak in that. So, I don't think those two provisions in my mind would change my belief that the people who are going to benefit from this the most tend to be higher income individuals to, you know, begin with.

Stitzel: I think that's kind of where this comes from a lot. Like, you hear somebody talk about this issue. It's --- they're talking about inequality. They're talking about distributional effects. It just astounds me for all the reasons that you just laid out. So, we're gonna forgive the student loans of the people who need it the least, right? Forgive the loans of the people who need it the least by focusing on student loans, right? Is [would] just be, like, the --- for inequality purposes [and] for distributional purposes, like, the ---- worst targeted. You can correct me if you disagree with this. This is just about --- among reasonable policies, just about --- the worst one that you could come up with in that regard. To be like --- I'm gonna forgive mortgage loans for people who have mortgages over $400,000 or something.

Pjesky: Yeah, and I generally agree with what you just said. So, if I were going to, you know, come up with an array of policies to address either income or wealth inequality in the United States, [then] I don't think student loans or student loan forgiveness is something that I would come up with in isolation. So, if I didn't know anything about this problem beforehand, you know --- if I, you know, just were, you know, from a position of a clean slate, asked to address the issue of income inequality in the United States ---- I don’t think that student loans would crack the top 10, or maybe even 50, policies that I would come up with as a remedy for income inequality.

Stitzel: It's certainly not a poverty fighting one, which maybe we'll get into some of that later, and kind of what precedent this sets for other things. But it's not a very good in the context of inequality either. And, I think, that, kind of, gets to the, you know, these kinds of things where they survey people and, you know, more than half the people say they're better than average drivers or something like this. It's like, I'm --- everybody wealthier than me is rich, and everybody poorer than me is poor. And so, that just, like, skews our inequality. It's just, so you go to college, and you graduate, and you go on. It’s like, you're not on the wrong side of the inequality --- the distribution of wealth or income in the country. So, I just don't find that.

Pjesky: Well, I mean, if higher education is generally fulfilling its promise, then that statement should be true, right? So, we, you know, in higher education, people's human capital should be enhanced, and they should be able to make a decent income coming out of school. So, if that is not happening, then I'm not exactly sure that student loan forgiveness would even be a plausible --- or a not a plausible, [of] course it's plausible, [because] we can do it, you know, I'm not really exactly sure that'd be effective --- remedy for that either. So, I'm not, you know, on those two criteria, I don't know that student loan forgiveness is just good policy on its own merits. I don't think I buy that as a solution for anything in those two realms, you know, especially the, you know, especially the inequality one.

Stitzel: So, you it's not policy that's gonna address inequality. So, let's search around for other reasons we could do this kind of thing. One of the things that most of the proponents of this are going to argue is: well, you cancel the debt, and then you're going to get benefits in the economy.

Pjesky: Yeah, and I think that's a good one. So, you know, when you really study the proponents of this, the, you know, inequality question, you know, somebody listening, you know, listening to us might think that we're going after a straw man. So, you know, that might be a fair representation. I'm not sure exactly very many proponents of this have thought that it would address income inequality specific. So, if that's the case, then I really wouldn't care that most of the benefits were going towards, you know, were going into, you know, higher income households. So, the other claim that people make is that the economy, and the specific individuals that have student debt, I guess by extension are saddling the economy; but the, you know, the economy is somehow saddled with all this debt, and that the federal government needs to address it. So, the stories that you might hear on the news would be something like --- you know, this individual is putting off having children, or putting off buying a house, or can't buy a car because they have student loan payments. So, the direct remedy for that would be to get rid of the student loan payments somehow, to get rid of the student debt, then, you know, this group of people who are saddled with this student debt can then go out and buy homes, can buy cars, and this would enhance the economy.

Stitzel: I find that just a terrible way to frame the decisions that people are making, because it’s exactly true in reverse. I can't go to college because I can't take on the student loan debt because I have car debt; and people would reflexively be against that kind of analysis. So, it's just not a very good way to set up the problem. I don't think, I mean obviously, it's not your formulation.

Pjesky: Right.

Stitzel: You're reacting to the formulation that you're seeing that's out there. Do you ought to comment at all on the idea of an economy being saddled with debt and how that affects its path of growth?

Pjesky: Yeah. I mean, as you say, you don't hear that argument being made too often the other way. So, you know, we would never address the problem of --- well, people can't afford to go to school. We would never come out and say (as you just said): well, people have too many car loans so they can't also borrow money for school. So, we need to get rid of the car loans so they can borrow money for school. So, that's not an argument that’s made very much. So then, we come back to this question of why are student loans being singled out in such a way that we need to think about them differently than we really, kind of, think about other debt in the economy? So, if we're really going to, you know, do some economics here, and think about how student debt cancellation --- or in other words, the existence of student debt --- somehow hampers the economy, we, you know, we’ve got some work to do with that. So, what are some of the possibilities? What are some of the possibilities? So, what mechanism might make the cancellation of student debt into something that would enhance or improve the economy? First thing that might come to mind to an economist would be: will cancellation of student debt increase productivity? And I don't think so. It might be the case. I'm going to say, might be. I mean, it is certainly the case that when people accumulate human capital (if it's really human capital), then the productivity of the economy should go up, right? So, we should be more productive as individuals and as a society as human capital piles up in our society. So, we learn things [and] we gather experience, whether it's academic or not. More human capital, more productivity, more economic output [equals a] healthier economy. You know, and then we're able to do more in in that respect. But I can't think of a way that student loan debt cancellation, you know, would enhance anybody's human capital because they've already gone to college. So, they're not going to learn anything more. They're not going to have any more experience because their debt has been wiped off. So, I don't think anybody can make that argument. You know, the other argument would be, sort of, more from the demand side. So, you increase demand in the economy by reducing people's debts. So, this would, you know, be akin to a fiscal policy story. This not necessarily fiscal policy as it's listed in a textbook, but the same kind of tools would apply here. So, you enhance demand in the economy, all right, by in one way or another giving people money. You know, you cut their taxes, you cut their debt payments, which is what's going on in this case perhaps. Or, you know, you send out stimulus checks or in what other ways that we've done that in the past. So, you can certainly think about student loan debt cancellation in that context. So, the question is then does this enhance productivity in the economy --- does this somehow increase spending in the economy which results in us being able to buy as a society more stuff? And different economists are going to have different views on this. And in fact, they have had different views on this. You know, one way of thinking about it would be this --- well, if you give, you know, somebody money, [then] that of course is going to increase demand. But where does the money come from? So, are we raising somebody's taxes to give this one group money? Are we borrowing more to give this one group money? You know, what exactly are we doing to come up with the resources that we are giving this group of individuals in order to increase their demand? Well, if that just creates a counterparty with decreased demand, then nothing’s going to happen, all right? Nothing's going to happen. And many economists have that view of fiscal policy in general. So, it's very, very --- you know, they would say that it's very, very --- difficult for the government to increase demand in the economy; because for every dollar they give somebody, they have to take away from somebody else. So, it increases savings. It increases indebtedness somewhere else, because the government's issuing bonds, and somebody's buying those bonds. And so, you know, the big economics term for this [is] Ricardian equivalence basically. And that and that's very controversial in economics admittedly, but that's just one part. That's just one possibility, all right? Another possibility would be the group of economists that would acknowledge those forces as being legitimate, and say: hey, yes that’s O.K. But, you know, there's all kinds of problems with the notion of Ricardian equivalence. And it is possible to increase people's demands to make them either actually wealthier, or at least feel wealthier without having a complete countervailing response in other parts of the economy. So, a classic case that many people would say this would work would be a time when unemployment is, say, really, really high, all right? So, you give people money. That puts more demand into the economy. People go out and shop. They buy houses, cars, dishwashers, you know, [and] whatever it is that they would buy. And when people buy those things, then in turn those resources that were unemployed become employed. You put people back to work. Demand increases and the output of the economy goes up. That is the typical fiscal policy story that we tell in every principles of macroeconomics class that we study all through, you know, all through economics at basically every level. So, the question that a lot of people have at this --- and I'm thinking of, I think, Noah Smith said this [and] I think Jason Furman said this, which are two prominent, sort of, left-leaning economists said: well, you know, student loan debt cancellation (or student debt cancellation) is not going to increase demand in the economy in any way. That's going to increase production because there are really no unemployed resources right now. So, we're in an inflationary period right now. Unemployment is 4% or so. You know, if we provide student debt relief to people that have too much student debt, you know, how are they going to use that money to buy a car in a way that’s going to make more cars in the economy, O.K.? So, if you've got a lot of unemployed resources, then you give certain segments, or the entire economy, more money. They go out and spend it. And all these people, you know, have a job now, because now people are buying stuff that they can in turn make. And so, you cure unemployment. You increase the economic output that way. But if you're in a period where resources are all employed, like, we’re kind of in a period like that right now. And unemployment is very, very low. Your economy can't make any more stuff than it's already making. So, if you give people money so that they can go out and buy a house, [then] one of the justifications for this [is that if] the people that are saddled with student loan debts, [then] they can't buy cars. They can't buy it. We just mentioned this. They can't buy cars. They can't buy houses. And they can't basically go on with their, you know, lives. Well, they’re not going to be able to. The, you know, no net houses are going to be able to be built; because if the economy is already at capacity, then if we give someone student loan debt relief --- or student debt relief,  I keep adding an extra word in there, if we can if we keep giving people debt relief --- and that enables them to buy a house, well then, that means that someone else in the economy cannot buy a house. Because providing this debt relief --- there's no mechanism for that to actually make more houses in the economy. You know, I mean, that is certainly true if there's no unemployed resources in the economy. You know, so if unemployment were 7% or 8%, [then] it would be a different conversation that we'd have right now. So, it’s not a case of Ricardian equivalence here. But when the economy is at full employment like we are right now, you, kind of, almost have to have Ricardian equivalence, which again, the notion of Ricardian equivalence is that for every dollar you put in the economy in one area, it gets taken out somewhere else. So, you increase demand in some places and decrease demand. So, there's an equal response that decreases demand in another area. So, I am really, really hard-pressed to find. I’m really, really hard-pressed to find any mechanism that would, at this moment in time in U.S history, make me believe that the cancellation of $400 billion dollars in student debt is going to have any impact in the economy at all. So, it very, very likely could do, you know, very, very likely could do nothing.

Stitzel: So, I'd like actually to take this idea --- well, I want to make one comment first and then I want to go back and take this idea --- I've reviewed the literature, and the estimates (the empirical estimates) of government spending multiplier are actually 0.25. So, you're saying Ricardian equivalence. If I actually ran that calculation, [it] is consistent with the Ricardian equivalence. It'd just be one to one. The multiplier would be one. So, it actually might be worse even than what you're saying.

Pjesky: Worse.

Stitzel: Right? Because you might actually have crowd out in that situation. But I don't take this idea back because you've laid that part out beautifully. But let's actually take that back to the supply side, right? So, you said cancellation of debt --- what's the mechanism by which it'll actually enhance human capital? And somebody says: oh well. And your analysis obviously is right. You know, this retroactive, right? You're forgiving the debt of people who already have the human capital benefits, whatever you think they are from college. But they'll say: O.K., but more people will then want to go to college. And I want to have a discussion about all of that here in a moment. Except that this idea that you're talking about of fundamentally where the resources to produce that thing --- don't they apply just as well on the supply side? So, I --- let's just grant for a moment. More people then end up wanting to come to college. They haven't magically made the resources more available in universities for them to take on more students, unless they're somehow a lot of slack in universities and whatnot, that students could go in there. Do you see a potential application of the things that you said about the demand side and slack apply to the supply side?

Pjesky: Yeah.

Stitzel: It's not even really supply…

Pjesky: Yeah.

Stitzel:…side, because that's just the demand side for education. But…

Pjesky: That is what you could think about being supply side. I mean, another motivation that might exist for this is to encourage more people to go to school [and] to go to college. And if that is what the ultimate goal is: --- O.K,. then you come back to the same question that we should always ask when we're implementing any kind of policy --- is that the best way to do that? So, having a one-time debt cancellation for people that have already finished school --- or, you know, even people that have stopped out of school, so they're not in school anymore, you know, whether they finish not --- if your goal is to encourage more people to go to school, [then] is that how you would do it? And again, I'm faced with the same thing that I've said already in this podcast a couple of times. If I was going to design a policy to encourage school enrollment, student debt cancellation wouldn’t be on that list. I don't think that's an effective way of, you know, encouraging people to go to school. That's not how I would do it.

Stitzel: Actually, it occurs to me why you say that --- what is the potential outcome of this debt forgiveness, even though it is, as you said, a one-time thing? Well, it then puts future borrowers in the position of thinking: well, there's a likelihood that this will happen again. The outcome is actually probably more debt in the future. I mean they’d…

Pjesky: Oh, I think it’s…

Stitzel:…waste a lot of money on that.

Pjesky:…I would say, an unambiguously bad outcome of this policy. I don't know that in the context that we're talking about right now, I would be very surprised if we could find anyone that would think that this a good thing. So, you know, again, put this in another context, all right? Let's say that I thought that there would be, like, a 10% chance (or something like that) of my car loan being magically disappeared. So, forgiven. Canceled. So, that would actually encourage me quite a bit, probably, to go out and buy cars more often, or buy more expensive cars, than I otherwise would. So, what you're saying is the same thing what would happen here. So, if students have this idea that their student loans are going to get canceled, then any restraint that they have in borrowing to begin with is going to be lessened. Of course, if they knew for certain that there was going to be universal debt cancellation sometime in the future, then there would be no constraint on their desire to borrow within whatever the parameters of that program that they thought was going to happen in the future would be. So, if I knew that I could take out $10,000 of this kind of loan in a given year, and I thought that sometime, you know, five years down the road that loan was going to be forgiven, then I would have absolutely no reason not to take out the whole $10,000 in loans. And that's the extreme example. So, if there's some intermediate case --- where the, you know, there's some probability of student loan cancellation, and if there were going to be some sort of limits to how much were canceled, then you'd have, you know --- you'd have sort of a moderation of that extreme case that I gave you. But this absolutely going to encourage more borrowing. And the question is: is that the most effective mechanism to finance higher education in the United States? I don't know that you could find anybody that would say: yes, you know, here's how we’re going to finance higher education in the United States. We're going to have students borrow the money to go to pay their tuition [and] whatever other expenses that they need to incur. We're going to have loans for that. And then every five to ten years or whatever --- we're just going to cancel those loans, all right? Who in their --- you know, if someone actually put that on the table as a plan to seriously finance higher education in the United States, I would ask them if they were out of their --- [right] minds? Because that is really, really bad way of doing it. There are so many ways of doing it that would be better than that.

Stitzel: Do you think though that policy makers that are advocating for this particular thing really think this a one and done? We'll never see anything like that again?

Pjesky: I don't know what they're thinking. Actually, I don't know what. I don't know what they're thinking.

Stitzel: I mean, I've got kids. They're a decade away from being in college. But this will almost certainly change my perspective. Now I'll have 10 years more of data between now and then. But if my kids were going to school tomorrow, this would absolutely change everything about the way that I viewed.

Pjesky: Well, I mean, my kids are in school now. And so…

Stitzel: Do they at least have $10,000?

Pjesky: They don't have to be in debt at all.

Stitzel: Well, they should at least have $10,000 in debt.

Pjesky: I'm regretting it now.

Stitzel: O.K.

Pjesky: So…

Stitzel: There’s still time.

Pjesky:…you know, I'm regretting it now. My, you know, my older son who's 20 right now, I wish that we'd have maxed them out with student loans.

Stitzel: Right.

Pjesky: So, you know, if I could go back a couple years, we would have done that. And, you know, at the at the very least, you know, the strategy that I would take personally is to borrow all the money [and] not spend any of it, right? And then whatever doesn't get canceled, you just pay back. And, you know, you might have some interest risks there, you know, some other things. But, you know, you might get a $10,000 [or] $20,000 windfall or more, you know. Who knows? So, I do think that people are very, very strategic in these ways, and as they should be. So, this certainly going to change how in reality higher education is financed by the students who could go. So, I'm not talking about the system of state appropriation that finances higher education, although that might change the second order thing. I think that when students that are, you know, 10-15-20 years old, [they] are thinking about how to finance their higher education, [then] this definitely is gonna this going to be present in their calculus now.

Stitzel: How many more students are going to get into college that otherwise wouldn't have been because of the program though?

Pjesky: That's an interesting question. I don’t know.

Stitzel: That's --- I don't, I'm not even sure I could put a sign on it. Well, I mean, if the answer is zero, then you can't make any kind of human capital argument for…

Stitzel: Yeah.

Pjesky:…doing this….

Stitzel: Yeah.

Pjesky:…right? Because if this doesn't enable more students to go to college that couldn't before, [then] you have no human capital accumulation that you didn’t have before. So, on that basis alone, this wouldn't be a successful [policy]. It might be successful in other ways, but on that narrow (in that narrow) context, you wouldn't want to do this. You wouldn’t want to do this. So, you want to --- you know, if the if the taxpayers are going to spend money on this thing, then you certainly are going to want to --- spend money in such a way that somehow enhances human capital. I can, you know --- that should be your ultimate justification. This a very interesting thing to talk about. But that’s not what has happened in the last couple of months.

Stitzel: Well, that would be a defense for this right?

Pjesky: It would be. But again, they're not saying that we're gonna, you know, go to school now with borrowed money because you won't have to pay it back. They’re not making any, you know, by day --- I'm sorry to use that. That’s kind of a weird term for me to use. The proponents of this policy are not selling it as a continuous thing that is going to happen in such a way that would encourage people to take out loans to go to school.

Stitzel: Yeah, I mean, they're just not.

Pjesky: I think if they did that, that would be indefensible.

Stitzel: I don't think they'd win doing that, but that’s a ---- and I’ve spent a long time thinking about that. Maybe you could spin it. But so, we, sort of, laid out the case here for why you don't really see mechanisms by which you'd see any enhancement in the economy. You didn't see any growth. You didn't see any kind of potential benefits there just moving things around at that point. Are there some potential downsides? Like one common thing here might be inflation. You see inflationary pressures coming from this?

Pjesky: Well, I mean, that is a very, very common criticism of this policy. So, the government is basically in one way or another gonna going to spend --- you know, starting from a baseline at zero, they're going to spend $40 billion or --- $400 billion dollars on this program. Is that the current estimate? Is that the latest estimate that you've seen? Has that been updated? Because the, I mean, the numbers [have] bounced between, like, $300-$500 hundred billion I think quite a bit. But let's, just, you know, let’s just say $400 billion. The amount doesn't really make any difference. If the question is will this be inflationary, I would answer that with it depends, all right? So, the devil's in the details. So, a lot of people who criticize this policy are saying: well, you're just going to create inflation. I don’t see that necessarily. It will depend on how it's financed, just like with any other government program. So, if the government was going to spend X number of dollars on anything, does it make any difference from what that thing is? If I were asked: will this be inflationary? I would say: how's it going to be financed? So, if this were financed with traditional borrowing by the federal government, if this were financed with increased taxes, if this were financed with reduction in government spending elsewhere, I would say unequivocally no. This will not add to inflation. That's an easy question. If this is financed by bonds that are issued by the Federal Reserve --- all right, and thus in a, you know, very, very mysterious way financed with new money, printed money (to use a very, very crude and maybe inaccurate analogy, but, you know, fair enough); [and] if this expenditure or if any government expenditure is financed with printed money ---- then yes, by definition it will be inflationary. So, the devil's in the details as they say with that criticism of this program. It doesn’t have to be inflationary, right? So, if they want to, you know, finance student loan cancellation over the next however many years by, you know, reducing benefits or raising taxes, you know, [then] we could talk about the merits of those things; and that would be a different question, but it certainly wouldn't be inflationary.

Stitzel: The Washington Post article that I have some numbers from says $230 billion dollars. But yeah, I've seen the higher numbers that you're talking about as well.

Pjesky: Well, I mean, there's some uncertainty, because we don't know how many. First of all, we don't know how many people are going to sign up. Because as with anything, there might be people eligible for this that don't sign up.

Stitzel: Yeah.

Pjesky: Which is kind of strange, but, you know, it happens. We've got a lot of people eligible for this. Some might [and] some might not sign up for whatever reason. And also, the, you know, another thing is something that I haven't quite kept up with, because it's happened in the last week or so, [is that] they are excluding --- the Department of Education has come out excluding --- a lot of people. So, one thing that people don't understand about student loans --- and I think this perfectly understandable that they don't understand --- is that not all these student loans are the same, all right? You have different serviceable even within what we would consider to be federal student loans. There are all different kinds of programs that exists, and the nature of those loans from the perspective of the federal government and other lenders are different. I don't think people that take out student loans really understand this. I think that they just say: well, I have student loans. And they never bother with the notion that there are different kinds of student loans. So, the Department of Education came out with guidelines last week that said: look, if your loan is of this type, then you do not qualify for forgiveness. And I think that disqualified like a million or two borrowers. I mean, it disqualified a lot of borrowers from that, you know, from the eligibility of the program. And so, you know, just that act by the Department of Education is going to reduce the cost of this by like $20 billion or so. And there may be more exclusions that come, you know, down the road. So, as I've talked with just individuals about this topic over the last couple of months, I’ve almost uniformly told everybody that I've talked about this thing: don't spend that money yet, because the details of this program have not been announced. The Biden Administration and their public announcements (and this what anybody hears) is that wow, if you have student loans, [then] you get $10,000 off of that. There have been no details about this. There have been no details about which student loans qualify or not. So, I think from the beginning it was if you had, like, a private student loan from a bank. The federal government doesn't have the power to write those down. So, of course, those are excluded. But, you know, not very many people have those. So, you know, who's going to be eligible for this in the end is suspect. And also, to my knowledge, and maybe I just missed it, the actual mechanism that people are going to get the money has not been announced either. So, you know, if you have a $23,000 balance on your student loan, is this magically going to just turn into $13,000?

Stitzel: Right.

Pjesky: And you keep making payments as usual. And you just, you know, your balance just goes to zero that much faster. Are they going to effectively refinance everybody’s student loan? So, if you have a $23,000 balance and it drops down to $13,000, are the payment[s] (is the time frame of the payment) going to stay the same, and your payments are now going to be based on $13,000 instead of $23,000? Is it going to be based in some way what your original amount was and refinance from there? Are they just going to cut everybody a $10,000 check? There's all kinds of ways that the federal government can do this. And to my knowledge, and maybe you've heard, and I haven't, but to my knowledge I haven't seen the details on that at all. And which, kind of, leads me to be somewhat confident that those details must not be available to the public.

Stitzel: Yeah.

Pjesky: Because this a topic I paid attention to.

Stitzel: Yeah.

Pjesky: You know, I don't think I would have missed that.

Stitzel: I don’t think that.

Pjesky: So that's something that is --- that's uncertain to me. And those details matter as well. Those details matter as well.

Stitzel: And in [my] principles’ class, [I will] always talk about fiscal policy lags, right? And one of the ones I talk about is you can announce a policy that you're going to engage in, and how that actually goes into play can take a long time, because it's to be determined by the bureaucrats who actually have to go and execute that policy.

Pjesky: Right.

Stitzel: So, yeah. I don't think that. I don't think that's out there. Would the way that policy shakes out matter?

Pjesky: Oh yeah. I mean, yeah. I mean, when you and I both teach our principles of macro classes, and we talk about fiscal policy --- you know, maybe, you know, certainly an intermediate class --- we might discuss this a lot. And we know the economic impact of these policies are going to vary quite a bit with how these policies are implemented. So, if, you know, if you give somebody $10,000 check, that is, you know, that’s going to elicit perhaps a different response in households than if you give them a $100 a month over, you know, 100 months or whatever it would be. So, how people would spend the money [and] how people would treat the money in those two scenarios --- economists think would be different. Another thing would be different is if they, you know, just lopped off $10,000 from the balance and you didn't get any of the money for several months. So, that might elicit a different practical response as well depending on how sophisticated people, you know, think about these things, and, you know, how much they're willing to take action to move money around. So, for somebody like you, or for somebody like me --- you know, if you give me $10,000 a day or, you know, $10,000 a year from now, or $10,000 stretched out over, you know, $850 a month for the next, you know, whatever it will be for the next year ---- whatever those numbers would work out to be for, you know, people like you and me, [then] those three things might be equivalent. But I'm not sure for most people those things would be treated as equivalent things. So, I think people's response to how the money is actually diverted to them is going to make a huge difference on how they spend it, all right? And we know that to be true. We've had a recent example of that to be true because they, you know, in the experiment that was around a year or two ago with the --- I think, which is a year ago basically with the ---- extra child credit that people have; because the normal child credit is you get $2,000 and it's all figured on your taxes. The United States ran an experiment for six months or a year where they didn't handle that with the tax return itself, but yet they divvied that out into people's bank accounts month per month. And the reason that you would do that --- you know, even though the monetary amount might be really, really equivalent, the reason that you would do that --- is because you believe that people would use the money differently if they were given it month to month as opposed to in one lump sum when they file their taxes in the future. So, you know, the extent of that is true is an interesting debate to have, but at least policy makers think it makes a difference. So, how this $10,000 lump sum of money is rolled out to people is going to impact how those people spend it.

Stitzel: I mean, that would be wild if it didn't.

Pjesky: Right.

Stitzel: You know, I think sometimes for economists, we look at that problem and we think: oh, you know, people --- they're going to do the math, and they're going to work everything out, and they're going to behave this way or that way, and it might all come out of the wash. And, I think, a listener to this episode is going to go: well, duh, of course it would matter. You know, it occurs to me if you've got sufficiently large student loan debt, and you just cut it off the back end of the debt, I wonder if there will be any effect at all.

Pjesky: Well, you wouldn't even notice it at all.

Stitzel: Yeah.

Pjesky: So….

Stitzel: I mean that's….

Pjesky: If you were one of these individuals that had $150,000 in debt, and that was just written down to $140,000 balance, and your payment today didn't change, [then] well. That, I mean, I think to most people that’s, you know, it's not just gonna make any difference. So, you know, if I have a $200,000 mortgage, and the government just told the bank to make that $190,000 and nothing else changed, my life today I don’t think would change very much.

Stitzel: Yeah, it took you 30 years to notice it.

Pjesky: Right. Right. So, you know, with them, you know, with the in the, you know, it's like, oh wow. It's like, I'm gonna think it's like, well, I'm in year three of my mortgage now, and, you know, I won't have payments in year 30. Wow! You know, I've got lots of, you know, now my wealth has increased. So, you know, let's go on vacation this year. It's just --- that's not going to happen.

Stitzel: So, it'd be rational. You'd be discounting that.

Pjesky: Yes, you'd be discounting. But even if you ignore the, you know, time value of money to, you know, to a great extent, you know, you would; by that, I mean, that’s really actually an interesting point. I’ve never thought about this. So, the cost of the government is going to vary greatly based on how they do this. So, if they expect people to just make their payments --- and they lop off the $10,000 of the balance, and they don't refinance for anything --- all of the costs of the government are going to be really, really far in the future, right? So, that $400 billion might not be $400 billion at that point. That never occurred to me. That never occurred to me.

Stitzel: It's interesting, given that we’re looking at episodes of inflation now, right? So, I want to say one other thing before we before we turn to that. But if I had $150K in student debt, and you cut $10K off the back, [then] that wouldn't change my behavior at all. If you gave me $10K up front, it would change my behavior, but probably not with any respect to which I would pay off my student loan debt.

Pjesky: No, probably not. So, I mean, if they just send out checks to people with student loans, you know, [then] that’s different than some sort of adjusting balances or refinancing student loans to lower people's payments. Those are two completely different things.

Pjesky: And these policies aren't even. They're not even similar. But I’m kind of interested in this idea about given the inflationary pressures that we observe, that we've been observing, right? So, we talked, right? The obvious right answer here is what depends on how this gets funded. And then, of course, you just added the observation --- it would also depend on when it gets funded. You know, some of the analysis that you see out there saying things like: O.K. well, you do this, and then basically that's, you know, wiping out any deficit reduction that the government’s been working on with their Inflation Reduction Act and whatnot, from way back in the day over the last decade. And it occurs to me the state that the Fed is currently in, and what it is trying to do, must be a factor, assuming that we were to pay these things out now. So, if we're cutting $10,000 checks starting in 2023 --- and just we get to you when we get to you in terms of getting the checks --- and you say: O.K. if you went through and cut elsewhere in the budget in order to make that happen, well then yeah, there's no inflationary pressure. That's just --- we're making choices. We're making trade-offs, right? If you try to go a different route where the Fed is at with its expansionary versus contractionary policy, [it] would matter a lot at that point. And that seems a little uncertain at this point. You have any comments on that?

Pjesky: Yeah. I mean, again, it just depends on how to finance. So, if they finance these expenditures and --- you know, individuals and pension funds and, you know, mutual funds and, you know, just the entire mechanism of the economy, just like, oh --- we're just going to buy these, you know, federal bonds that the government's issuing, [then] it's just not going to be inflationary because it can't be. So, because there's no new money being put into the economy at that point. So, but again, it’s when the Fed gets involved with the financing --- which the Fed has been involved in the financing of government expenditures for the last, well, forever, but it has been majorly involved ---- since the beginning of the pandemic with all the provisions that the governments of the world have done. You know, in the United States as well as other places, the, you know, the Fed has basically been financing government spending. And that’s why we have inflation right now, because we've got all of this money being pumped into the economy.

Stitzel: So, let's look at that budget stuff and the cost, right? Because it's one thing to talk about inflation, you know. It's another thing to talk about the nature of the cost. So, I've got some numbers here --- a couple of which are the ones you were talking about the plan to cancel up to $20,000 in student loan debt for federal aid borrowers --- [and] as you pointed out, is expected to cost about $400 billion dollars. You mentioned that 95% of the borrowers. But it's interesting here. I'm just sort of an aside --- about 45% of borrowers are supposed to have their balances completely wiped out. That's a higher percentage than I would have estimated. So, that kind of reinforces the scale that we're talking about this. But, you know, there’s the other side of that. So, there's some people that estimate that cutting tuition by a $1,000. Now, there's obviously a difference between cutting tuition and forgiving student loan debt, but would raise college completion by about two percentage points, right? And so, if you run this all the way out --- and you're basically making college free, we’ve got a current population of college grads around 38% --- [then] something in the ballpark of 50%-60% is probably a good guess. About where we end up are, like, at least where you'd be headed, right? But if you're doing that, [then] you're talking about canceling about $2 trillion in student debt, right? So, I mean, that's a different magnitude of problem obviously than $400 million, or $400 billion. Sorry. And this gets back to that idea that I said I wanted to circle back around to earlier --- is that now you're looking at an actual regime change, right? You're looking at a situation which we've got hundreds of billions of dollars spending every year, rather than this one-time thing that we've been talking about, right, given where the budget is relative to GDP [at] 130%. And you've got inflation at its 40-year high, how do you work that type of policy into this? What are your thoughts on just the cost component of this in general?

Pjesky: Well then, I mean, these numbers are huge. So…

Stitzel: I think we get numb to them and I’m still kind of amazed by these numbers.

Pjesky: I mean, $400 billion is big.

Stitzel: Yeah.

Pjesky: But the $1.8 or $2 trillion or whatever that constitutes all student debt in the United States --- that's just a vast number. And if the, you know, the --- well.

Stitzel: That’s just currently existing.

Pjesky: Yeah. And if --- yeah. That's growing amazingly high. That's growing at an amazingly high rate. And I'm not, you know, I would ever claim to not be alarmed by it. I mean, in terms of some rethink of how we finance education, I think there's a good case to make that we need to try to find a better way to finance higher education. But, you know, even with the, you know, $200-$400-$500 billion in student loan debt that's going to be canceled by the recent actions of the Biden Administration, you know, total outstanding balances are going to return to what they were very, very quickly, because student loan debt is rising rapidly. But, you know, to cancel $2 trillion dollars in student debt is, I mean, that's a monumental thing to be thinking about doing. And, you know, how the finance of that would work is, I mean, if you're going to cancel all debt without exception, it's (the procedure to do that is) easy. People just don't make payments anymore. So, their balances are zero. And the loss of revenue to the government if it did that would be the $2 trillion in less revenue that's coming into the government over the next --- you know, depending on what, you know, people’s student loan durations or, you know, maybe up to --- 20 years, I think, is the most that anybody can have. So, if student loan debt were canceled today, then that $2 trillion would have the impact of just --- we'd have that much less coming into the coffer over the next 20 years. So, it would, you know, we could think about that as a pretty large tax cut basically. It wouldn't be a, you know, it wouldn't be tax cut, but we could definitely think about it just like a tax cut in that regard. And so, how would we make up that money? Would we raise taxes [or] cut benefits in other areas? I try to increase borrowing or get the money from the Fed. So, it's the…

Stitzel: Can you get it from the Fed?

Pjesky: I would imagine. I don't know. Is there a limit to how much the Fed?

Stitzel: Well, no. I didn’t mean that. I've just meant with inflationary pressures…

Pjesky: You would want to.

Stitzel:…but like obviously the Fed can write whatever.

Pjesky: You would want to. So, it's, like, you can, but that doesn’t mean that it’s a good thing to do. And so, you know, though the size of that, you know --- $2 trillion is just a staggering amount of money. I can’t wrap my head around $400 billion either; but I can't comprehend $2 trillion dollars. That’s a lot.

Stitzel: We're at a unique time in order and being able to, like, actually press the lesson that your government budget, and what you're doing with it, has real impact on people elsewhere in the economy, right? And so, you said something very straightforward. If you're going to do this, right [of] the $400 billion, [then] let's just set aside the $2 trillion of knocking out everybody's debt, right? Just the $400 billion, O.K. That now creates this gap in the government budget between the revenue and the expenditure. It's got to come from somewhere. And, you know, there's, I mean, I've seen this kind of conversation, you know, online --- not in very sophisticated places obviously, but online --- saying: well, what's it to you if somebody else's debt gets [paid off]? Well, let's pretend for a second that the government comes out with a credible guarantee that this all going to be financed with the creation of new money. We’re living in a world with 8% inflation this quarter. What's inflation going to be next quarter, right?

Pjesky: We’re at something above 8%.

Stitzel: And so then, it should be very real to you if you could just link one to one. If we had this kind of addition to the budget in this loan forgiveness, and then it's going to be financed with high powered money, and then we're going to get inflation. It's going to be something higher, even if we're just 8% again, right? That’s the thing about inflation, right? Is it you don't want inflation to be stabled out at 8% every quarter, right? That's disastrous even if we're just 8% again, [then] that would give us that sense of the kind of cost that's going to be borne by the economy to deal with this kind of expenditure, right? And it's, like, O.K. Let's do it the other way, and let's say we're just going to cut the spending. We're gonna promise there's going to be no inflation. Well, that money is going somewhere.

Pjesky: That's right.

Stitzel: There's somebody out there that’s dealing with the smaller budget of government spending now because it's been dedicated to this.

Pjesky: You know, and this a different way of stating the point that I made a few minutes ago. So, you cannot avoid the fact that whether it's $400 billion or $2 trillion. You can’t afford the fact that in the economic environment today, that student loan cancellation, all right, student debt cancellation is a transfer…

Stitzel: Yes.

Pjesky:…from one group to another. So, there's no way that it increases the supply of goods and services available in the economy, which means that there's just more stuff out there for everybody. It doesn't make the pie bigger. You can't make the case that we're going to employ unemployed resources. So, the things that people, you know, the things that people buy the things that people buy suddenly become more plentiful. So, one person’s ability to buy more doesn't mean that somebody else has the ability to buy less, all right? So, this a direct transfer. We’re not exactly sure from whom to whom. We like to think that this going to be at least to those that have student debt. But I'm not exactly sure that's true, right? So, you know, if we give everybody $10,000 to go out and buy a house --- and that just results in everybody’s house costing $10,000 more, but you haven't given anything to the people that have the student debt --- you have given it to the people that are selling the houses that they're buying. So, I'm not even ---you know, and this, there's always a problem for me when we talk about transfer. It’s really, really uncertain to me who is going to bear the cost of this, and who even is going to get the benefit of this, well, especially in an inflationary environment that we have right now.

Stitzel: Yeah, especially in the inflationary environment that we actually have going on in this, in the sense that we mean inflation; but there's another type of inflation that is going to happen, you know, if we get this regime change that’s being hinted at, right? Like, I just as we've already discussed, even if there isn't an actual second wave, third wave, [or] however many more waves of debt forgiveness out there, right, government programs that don't have a tendency to get smaller are going to have a tendency to get bigger. It would be real shocking if this a one and done kind of thing.

Even if it is one and done --- people are gonna think: well, there's potential for it to have, there's gonna be more people going to college potentially, right, which --- [we are led] to an actual another interesting potential outcome, which is credential inflation, right? And that if we have these numbers like we were talking about, maybe going from 38%-50% of people having college grads, [then] who's paying for this? One of the answers would be [the] people who already have degrees that are now in in the marketplace that could potentially be competing with the new grads coming into [the workplace]. But you've not done anything, right? You've not actually put more good jobs into the economy doing this. You just put more people into the economy competing for those kind of things, and you're going to have an arms race in terms of the credentials to get these different jobs.

Pjesky: Yeah. I mean, there’s --- I mean, right now what you're talking about is it’s a pure conversation about what economists would call incidents, right? So, who bears the economic costs and the economic benefits from a certain policy change, you know, whether it's a price change or an increase or decrease in taxes or whatever. This a pretty common thing that we talk about in our economic classes in many of them. And so, you know, if we're just proliferating degrees in the economy, and these degrees don’t enhance human capital very much, all right, then you are just imposing costs on people who already have degrees. Now whether or not that actually goes on, that’s debatable. You know, we don't know that. I mean, it might not be debatable to some people. But I think for somebody, you know, I think you're in good company. Where I really, really wonder, you know, about this, so, you know, do we have people with college credentials doing jobs that they don't really need college credentials to do, you know, in other words. And that's the, you know, conversation that we're having right now. So, if that's the case, [and] if we push more people into college through any means --- all right, whether it’s student loan cancel debt cancellation, or some other means of financing higher education that makes more people go to college and complete college, you know --- there's two possible outcomes of that, and they might be extreme possible outcomes to that. So, you know, one possible outcome is that higher education increases people's actual productivity quite a bit. And so, you consume more resources going to college. You get out there and you're more productive, all right? If that’s the case, then you're not imposing the kind of cost that you're talking about on anybody else at, all right? But in the other extreme, O.K. --- you go, and you get --- and these are two extremes. The reality might be somewhere in the middle, all right? But to think about these things it's always helpful to me at least to think about the extremes. So, in the other extreme, somebody goes to college. They complete college, and the stock of human capital in the economy has not increased at all. If that's the case then you're --- and this is what you're saying, so tell me if I'm wrong. You are imposing costs on other people that have college degrees, because now their college degrees are worth less. Now this isn’t you or me that's come up with this notion. The idea of credential inflation is a real concept that people talk about all the time. And if credential inflation is a conditional statement, [and] if credential inflation is a problem, all right, then you actually might not want more people to go to school, because you're imposing costs on some individuals and you're not making the pie bigger at all. You're just shuffling stuff around in a way that’s really, really arbitrary, I think. So, in that context, it's really, really difficult to identify the winners and losers. And these policies are so big, and they’re so complex, and we know so little about them, is that it’s really, really uncertain in my mind who gains or loses from any of them, in terms of groups. You know, I don't really do this anymore. Maybe you do, but I don't seem to. And I don’t really know why I don't do this. But when I used to teach economics a long time ago, you know, we would play a game. And I'm doing air quotes right now, you know. We would play a game of who wins and who loses, all right? So, we talk about taxes or a subsidy, and we draw supply and demand of the effects of that tax or subsidy. So, demand or supply would shift, or both, or something like that. And then, we would discuss who gains who loses, all right, from, you know, from this policy. So, consumers gain [and] producers lose. You know, consumers of government services might gain or lose if we've got a tax cut or tax increase. And so, when I look at student loan debt cancellation, it's not clear to me who gains or who loses, all right, especially in an inflationary environment like we have. So, you know, again, the case is that wow, people can't buy a house because they're saddled with too much student debt. Well, if you cancel that student debt in an amount of $10,000, and everybody goes out and tries to buy a house, and the price of houses goes up by $10,000, well you haven’t benefited the people that you gave the money to at all, right? They're exactly in the same boat as they were before, because they don't have any more ability to buy the thing that they want to buy that they had before. So, you've just given them $10,000, but the price of what they wanted to buy has just gone up by $10,000. So, what's the point in doing this to begin with? So, who have you benefited? Well, you’ve benefited the person that’s selling them the house…

Stitzel: Yeah.

Pjesky:…which is not even remotely the intent of the policy at all. Well, and…

Stitzel: Not if you're generous to the policy makers. But this would be one really obvious prediction from this, right, is the one group that will almost certainly benefit are people related on the university side.

Pjesky: Yes.

Stitzel: The universities will benefit. They'll end up being more faculty positions and more staff.

Pjesky: Yeah. I mean, you and me should be popping the champagne...

Stitzel: Yeah.

Pjesky:…right now because the one thing unambiguously that has happened is that the demand for our services has gone up. So, it is incredibly difficult for me to come up with a scenario that makes us losers, right? So, this very in a narrow self-interest sense, you and me shouldn't have this conversation the way that we're having it. So, we shouldn’t be questioning this at all, right? Because this, you know, I can't think of a way that having more people want to come and take my classes makes me worse off.

Stitzel: But it's more than that too. And you said this, right, because this is exactly the housing price analogy that you were talking about. Not only that, but more will be charged to them…

Pjesky: Well, yes.

Stitzel:…because you've decoupled the incentive too. You’ve decoupled the pain with the consuming.

Pjesky: Yeah.

Stitzel: So, you've decoupled the incentive to keep costs low as well. So…

Pjesky: Well…

Stitzel: You've disconnected.

Pjesky:…I mean, it isn’t a controversial thing either. So, if you give someone $5.00 to buy something, to make it easier for them to buy something, and the price of that thing goes up by $5.00, all right, you haven't helped the person that you're giving the money to. So, you know, they’re not suggesting any policy that's just going to write a check to college professors. That’s not part of this. But in a real economic sense is exactly what they're doing. That's exactly what they're doing. And if you --- and this is another thing that you just mentioned that's even above and beyond that, you know, if you are decoupling. And it isn’t a controversial notion either. If you decouple the payment of the thing from the buying of the thing, and you introduce the third party that's paying for something, then institutions of higher education have less incentive to care about what our customers are paying for a product, all right? So, you know, if we know that everybody who wants to be a student at our university --- and this would be generically true for any university. It doesn’t have to be the one that you and I have to work for. So, this applies to everybody. You know, if our customers are no longer cost conscious, then we don't have to keep costs down. So, at our particular university, our customers are generally, pretty cost conscious. So, you know, plugging for our institution, I can honestly say that we've done a pretty good job of trying to keep costs down through the acceleration of price. Of in higher education in general, we’ve tried to keep, you know, coming to our institution fairly affordable. You know this. You were a student here. So, you know, you not only work here, but you were a student here as well.  That’s a good thing. I mean, who in the world would think that is a bad thing? But if someone else comes in and says: hey, I'm paying the bills, all right, then I don't really see an incentive for institutions to worry about holding costs down, right? If somebody else is paying, I'll have a steak. You know, and if I go eat at a restaurant and somebody else is paying, [then] I'll have the steak. But again, this your entire point. The restaurant no longer cares what my bill is anymore, because I don't care what my bill is anymore.

Stitzel: Yeah.

Pjesky: So, why not just charge more for the steak? And that's a real danger here. That is undesirable in any circumstance. That is undesirable in any circumstance, because at the very least, you get quite a bit of waste that goes on.

Stitzel: Yeah. Yeah, there's a lot to be said for, as uncomfortable as cost cutting and cost management is for any business, they’re doing that because their customers care about that; and they, of course, care about their bottom line, and staying in business, and all the various things that a business cares about. But this has really important large-scale effects in the economy, because that means we're not being wasteful with resources. And, you know, I think, we're, kind of, good at thinking about that in a visceral sense, when we're thinking about producing something. And you don't want to, you know, waste the lumber or the metal or whatever, but people's time is really important, right? And that's one of the things that you want to be careful of in a university setting is [that] they’re not sucking people into the university, to teach in a setting that's inefficient, when they could be doing something else elsewhere in the economy.

Pjesky: Yeah. I can say this with absolute confidence, O.K. Having an effective mechanism of financing higher education would be an undeniable and huge blessing (for lack of a better word) to the economy. O.K. Having a poor mechanism to finance higher education would be potentially disastrous to the economy. And, you know, regardless of what issue that you're talking about, all right --- whether or not it's the provision of health care, provision of education at any level, you know, regardless of what goal that you want government policy to achieve, whether it's increased literacy, increase higher education completion rate, increase access to health care, [or] any other number of things, you know, a secure retirement for, you know,  workers as they age ---- no matter what your goal is that government has a hand in [also] has a role in would have potentially positive role. And there are good and bad ways of achieving that goal. And I have absolutely no doubt that we need to reform higher ed finance in the United States. I think student loan forgiveness is an awful way to try to achieve that goal. I could probably think of a worse way to try to achieve it. But off the top of my head, I can’t. I can’t. So, I don't. I'm just, sort of, flabbergasted right now that we're actually treating this as a serious policy, because there are better ways to achieve a goal.

Stitzel: So, I'm coming up on an hour now. I want to bring it in for landing. And to do so, I’m going to do something I'll usually do on a podcast. And I'm going to throw in just, you know, the wrinkle of all wrinkles here. So, Brian Kaplan asked the question: does anything that we’re discussing in this sense even matter, right? And the reason he asked that is because 99% of people stopped making payments on student loan debt when COVID started. And the government has repeatedly delayed the resumption of those payments, with the latest update on that is this is supposed to resume January 1st of 2023, right? So, let's pretend for a moment that we know for sure/certain this will be the absolute last extension. Are students even gonna actually start repaying their loans again when that starts up? Now, the question here that we're asking is this, sort of, like herd behavior, safety and numbers kind of thing? So, weigh in for me a little bit on this idea. Is it, is all this conversation that you and I just had, is it really just academic? Because how are we going to get the people to repay their loans anyways?

Pjesky: Well, I mean, yeah. If nobody starts repaying their loans, because people are probably quite accustomed to not paying them by now, because they haven't paid them for what? Almost two years…

Stitzel: Yeah.

Pjesky:…basically? Or at least, you know, most borrowers have enjoyed the, you know, the universal deferment. So, you know, from a policy perspective over the long run, that's the equivalent of canceling everybody's student loans.

Stitzel: Yeah.

Pjesky: You just don't ask for them to. You just don't ask for them to. You just don't ask for money anymore. Actually kind of surprised that if policy makers have that goal, I don’t know why they didn't use that mechanism. I just said we're just going to defer another year. We're just going to keep deferring it forever, and then eventually everybody’s student loans are more or less canceled. If they have to pay them back, [then] it's the same thing. And, you know, Kaplan’s point about being safe, you know, there being safety in numbers is really a good one and really interesting one. So, you know, if you're one person out of a thousand that doesn't pay your debts, society can be pretty rough on you, right? So, if you're one person out of a thousand that doesn't pay the mortgage that you owe, you know, the deputy can come and kick you out of your house eventually. I mean, that's what will happen to you long enough. So, the bank would foreclose, and you would no longer be able to live in the house that you had borrowed money for. But [what] if there aren’t enough deputies [and] if no one pays their loan back? So, you know, one of the reasons that, you know, you want to pay your loans --- a little bit less dramatic than the deputy, you know --- is that you want good credit. So, if you don't pay back your loans, [then] you don't have good credit. So, if no one pays back their student loans, then everyone's credit is a little bit worse. But your relative standing hasn't really changed at all. And so, you know, if there could be some coordination among borrowers of student debt, or any kind of debt, to just not pay them back, [then] there really wouldn't be any thing that our society could do about it. Now, I think that’s Kaplan’s point. Do you think that's Kaplan’s Point?

Stitzel: Yeah.

Pjesky: Yeah. So, you know, I don't want to speak for somebody else, but I think that's Kaplan’s point. And these people are kind of coordinated right now.

Stitzel: Yes.

Pjesky: They haven't been paying them.

Stitzel: Yeah.

Pjesky: It’s not like that there's some, you know, movement on Facebook telling everybody, you know, at this date just quit paying. You know, I don't think those kinds of things will work.

Stitzel: Well, this the importance of emergent behavior.

Pjesky: Yeah.

Stitzel: If you're sitting there with student loan, [then] come January 1st are you gonna pay? No, I mean, why not wait a month and see if anybody pays?

Pjesky: That's gonna be interesting.

Stitzel: This will almost for certain. And the funny thing is [that] the longer that you delay that, right, this a lesson for parenting as well, right? When you got a kid and they do something, right? They reach. They reach for something they shouldn't reach for, [with you] saying: don't do that. And then they grab the thing. And [then you] say: don't do that. And then they, you know, run off to the room with the thing you don’t want them to have. Don't do that! At some point they're going to realize you're saying don't do that doesn't mean anything.

Pjesky: Yes.

Stitzel: Right. So, the longer you’re, like, just threatening and not actually doing anything, now do that you got a thousand kids at once and only one parent…

Pjesky: Yeah.

Stitzel:…you can't reinforce that behavior. That's the actual situation.

Pjesky: It's actually even worse, because it's worse than what you describe, because your kid is doing something you don't want them to do. But now you've had a couple of years where you've actually let them do it.

Stitzel: Yeah.

Pjesky: And, you know, so it's not like that you're threatening them. You're --- it's not like that you're telling them not to do it when they’re doing it. It's like, well, you know, last year I didn't want you to do this thing, but for the next two years you just go ahead and do it. And then, there'll be some arbitrary point in the future where I'm going to stop you from doing that again. So, that wouldn't work.

Stitzel: No.

Pjesky: Your kid would be not --- your kid would always do it. You know, and so it's….

Stitzel: Especially the first time. Especially when I really do show up on January 1st and I say: the policy changed.

Pjesky: Yeah.

Stitzel: They're absolutely gonna wait to see if the policy has actually changed.

Pjesky: That's right. I think they're gonna test you. And so, let's, you know, we'll see what happens in January. And if people just don't pay them back, then this discussion about debt cancellation --- it’s (it is) academic at that point. It doesn't make any difference, because now we have a situation where debt is cancelled. So, because if people just say: I'm not paying, [then] it it's done. You know, it's done at that point.

Stitzel: So, either way, we've got free college for all.

Pjesky: Either way, we have retroactive free college for all. And I guess the people can borrow up to the --- you know, the only way the government could shut that down is not have student loans anymore. That's the only remedy. And I don't see that happening, do you?

Stitzel: No.

Pjesky: So, people just borrow money that they know they don't have to pay back for college. And again, maybe free college for all is in the mix of policies that we should be contemplating for this. But that's a poor mechanism.

Stitzel: So…

Pjesky: There's a better way. There has to be a better way.

Stitzel: So, I'll ask you this and I'll get out of here. You have your choice between people take student loans and then don't pay them back, or we just announce free college for all, and just third-party pay our way through universities. Which one do you like and why?

Pjesky: Oh, the latter. Just the free college for all and not through the debt mechanism is what I would pick. But even if you did that --- the devil's still going to be in the details, because you can't have, you know, and this exists through the debt mechanism too, but, you know --- colleges buy all sorts of things with student money that aren't directly education related. So, you know, sports stadiums for instance. You know, some people get private donors to buy their sports stadiums and those kinds of facilities. But do we really want federal taxpayers paying for those things? Probably not. But, you know, even things like student activity centers. So, you know, the actual football stadium is, kind of, an extreme case, where probably most the time it is private funds that build those things, then I guess we shouldn't interfere with those. That's a different conversation at that point. But, you know, what about the student activity center or the intramural field, which are elaborate, expensive things that are paid for by students. Do we want that to be part of what federal taxpayers spend their money on? Or do we want to say: look, you know, we're going to provide enough student subsidies to pay for these things, but if students in an individual college want the elaborate walk rock climbing wall, you know, do they want all of the intramural softball stadiums? Do they want the world-class weight room, you know? Do we want the world-class cafeterias and stuff like that? Maybe students at certain places have to pay for those, but if you do that, then you don't have free college anymore. So, this not an even an easy problem to think about. So, the devil will be in the details of those things. But retroactively canceling student loans, with the promise that we're always going to cancel student loans, is a horrendously bad way to finance higher education. There's no way that I can think of that's worse than that.

Stitzel: My guest today has been Dr Rex Pjesky. Rex, thanks for joining us on the EconBuff.

Pjesky: Thank you. I'm happy to be here.

Stitzel: Thank you for listening to this episode of the EconBuff. You can find all previous episodes on YouTube @ EconBuff Podcast. You can check out our website at www.econbuffpodcast.wixite.com. That's wixsite.com. You can contact us at econbuffpodcast@yahoo.com.