The Story: President Biden has “forgiven” millions in federal student loan debt. Here’s why this action is a form of intergenerational injustice.
The Background: Last week President Biden announced the federal government will “forgive” millions of student loans. Borrowers making under $125,000 per year will be able to forgive up to $10,000 in federal student loans, while Pell Grant recipients earning under that same threshold can discharge up to $20,000 in student debt. Loans for graduate school also qualify, though they’re not eligible for the extra $10,000 offered to Pell Grant recipients. Current students are eligible only if their parents’ income falls below the qualification cap and if their loans originated before July 1.
The Washington Post notes this is “the single largest discharge of education debt on record.” Analysis by the University of Pennsylvania’s Penn Wharton Budget Model, a nonpartisan, research-based initiative, estimates that the plan will cost a minimum of $500 billion and could cost taxpayers as much as $1 trillion.
What It Means: To fully understand why this form of debt “forgiveness” is unjust, we need to understand what makes federal student loans unique.
A student loan is a type of debt instrument used to pay for a narrow type of product—a higher education degree—that is nontransferable, meaning that it cannot be sold or traded. You can’t directly sell your BA in medieval studies to another person, nor can you give it to someone else. The degree thus has a monetary value only for its holder and primarily insofar as it increases a person’s income. If it was acquired for nonmonetary reasons, such as for personal growth, then the degree is merely an expensive luxury product. And if we truly believed higher degrees were always valuable for creating an educated citizenry, we’d fund them publicly as we do the K–12 system. For many Americans, it’s unclear whether that most degrees provide either a solid education to their holder or a clear benefit to the community.
Because a degree is a product valuable only to its holder, loans to pay for a degree would normally require some form of collateral. But the people who take out such loans tend not to have sufficient collateral. If the degrees were known to be intrinsically valuable, then colleges and universities would be willing to back such loans themselves by taking a guaranteed future cut of the degree holder’s income. But colleges and universities know better than almost anyone else that most of their degrees have almost no monetary value. (The exception is computer science and almost any degree in the field of engineering.)
What financial institution would loan money for a uncollateralized product that cannot be resold and typically has no monetary value? The U.S. government. The federal government currently issues more than 90 percent of all student loans.
The U.S. government provides the money to students who then pay the colleges. But the U.S. government doesn’t have any money of its own. To acquire the resources, the federal government must sell U.S. Treasury bonds or similar types of securities. This means that there are two borrowers, not just one: (1) the student who took out the loan and (2) the U.S. government.
The important thing to note is that the government always has to pay off such bonds or issue new ones and pay the interest indefinitely. If the individual who holds the student loan makes a payment on their debt, then the money goes to the U.S. Treasury to allow the government to pay the debt it incurred when giving out the loan. When it’s not paid back by the individual or is “forgiven” by the government, then the U.S. taxpayer is responsible for the debt and must make the payments on the debt. Unfortunately, the principal on the debt isn’t paid by the current taxpayer. Since the government is continually loaning out more money for student loans, the principal is never paid down. We only pay interest payments on that debt and leave the principal to be paid by future generations.
This is a lengthy explanation, but it’s necessary to correct a common misperception that such loans can be “forgiven.” In reality, the debt is transferred to a third person who is responsible for payment.
A federal student loan is an agreement between a lender (the U.S. government) and a borrower (the person seeking the degree). The process of federal student loan “forgiveness” is the transfer of the debt to a third person who didn’t make the agreement. They are forced to accept the debt while not receiving any sort of benefit from the original loan.
In biblical terms, this is what is considered an injustice.
If we were to substitute almost any other form of economic good, the injustice would be obvious. Imagine, for example, that the federal government gave $10,000 worth of land to an individual making nearly three times the median household income (currently $44,225) and then sent the mortgage to a random low-income family. Most Americans would be outraged. The same sentiment should be shared by Christians who believe that debts shouldn’t be transferred to an innocent third party without an overwhelming justification.
The Bible is clear that borrowers are to pay what we owe. The apostle Paul says, “Pay to all what is owed to them: taxes to whom taxes are owed” (Rom. 13:7). Similarly, the psalmist warns, “The wicked borrows but does not pay back” (Ps. 37:21). And Proverbs tells us, “Do not withhold good from those to whom it is due, when it is in your power to do it. Do not say to your neighbor, ‘Go, and come again, tomorrow I will give it’—when you have it with you” (Prov. 3:27–28), implying that those who have the ability to pay back a debt are obligated to do so.
If we as citizens are to pay taxes and revenue we owe, shouldn’t the civil authorities who are set up as “servant[s] of God” (Rom. 13:4) be expected to do the same?
Because the federal government is already in debt and not able to pay what’s owed, the new debt being created by the federal loan forgiveness program is leaving a debt obligation to people who have not yet been born. That makes the national debt an issue of intergenerational justice. The Stanford Encyclopedia of Philosophy explains the phrase: “Present generations may be said to exercise power over . . . future generations when, for example, they create conditions that make it costly for future generations to decide against continuing to pursue present generations’ projects.” In this case, the project that future generations must continue is paying the interest on loans, and, since the loans are already “forgiven,” future citizens will have no option to discontinue paying for them.
As John Coleman has said, “[Government] debt can often be seen, essentially, as a loan from future generations to the current generation.” We’re taking money to pay for college degrees and sending future generations the bill—all without giving them a voice or vote in the matter. This means we’re using the power of the federal government to subsidize colleges and universities and have it paid for by future generations. The result is that those generations will have fewer resources for their needs, such as taking care of the poor and elderly.
Current holders of student loans are rightfully frustrated (and will have to discern whether to accept the “forgiveness” on offer). They were encouraged, often at a young age, to borrow money against their future earnings to pay for a degree they were told was necessary for their flourishing. The entire system must be overhauled to prevent students from continually falling into this debt trap. But the solution isn’t to let student loan holders transfer their debt to others.
It would be a lamentable act of injustice to have the debt of student loans passed on to the taxpayers living today. But to pass them on to those not yet born is an outrageous act of intergenerational injustice. While we can’t do much about the injustice that was thrust on us by previous generations, we should work to break the cycle of exercising unjust power over our descendants.
“But what about the Jubilee?”
Any discussion among Christians about debt forgiveness will inevitably turn to the concept of the Year of Jubilee. According to Leviticus 25:8-17, every 50th year in Israel was to be announced as a jubilee year and all land should automatically revert to its original owner (Lev. 25:10, 13). Those who had sold themselves as slaves to their brothers because of their property would also regain their liberty (Lev. 25:10, 39).
It’s unclear why so many people believe this passage is about “forgiveness of debt.” Verses 15–16 make it clear that what is being bought is not the land but the use of the land for a set number of years:
You shall pay your neighbor according to the number of years after the jubilee, and he shall sell to you according to the number of years for crops. If the years are many, you shall increase the price, and if the years are few, you shall reduce the price, for it is the number of the crops that he is selling to you.
The point of Jubilee is not the forgiveness of debts but that land and people couldn’t be permanently transferred to another owner. As Old Testament scholar Gordon Wenham explains,
Leviticus 25 prohibits anyone from selling himself or his land off permanently. In effect he may only rent out his land or his labor for a maximum of forty nine years. The rent is payable in one lump sum in advance, as if there was a sale, but in the Jubilee year the land reverts to its original owner and the slave is given his freedom.
(For more on misunderstandings about the Year of Jubilee, see “Five Myths about Jubilee.”)
There are, of course, other passages in the Bible about forgiveness of debts (e.g., Matt. 18:23–35). But in each case the person who owns the debt is forgiving the loan; it’s not transferred to an unwilling third person as it is in the case of student loans.