by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Kyle Reynolds writes for the Federalist about an idea President Biden should have considered instead of his misguided student loan amnesty. That idea stems from the work of one of the world’s foremost economists.
The application for President Biden’s student loan forgiveness plan recently became available to the public, reopening debate on the federal government’s role in the matter. The economist Milton Friedman offered a particularly innovative, yet politically infeasible, solution to the conundrum in his 1962 classic, “Capitalism and Freedom.”
Friedman advised the adoption of income share agreements. In such agreements, a borrower would take out loans from an institution, typically the federal government, that is willing to invest in his or her education. The borrower “in return would agree to pay to the government in each future year a specified percentage of his earnings in excess of a specified sum for each $1,000 that he received from the government.”
This presents a rather elegant solution to the longstanding concern. As Friedman noted, such an arrangement would ensure that the individuals who received the education “would in effect bear the whole cost. The amount invested could then be determined by individual choice.”
The efficacy and efficiency of this proposal stand in stark contrast to the recent incompetent and ineffective actions of the Biden administration’s proposal to forgive $10,000 to $20,000 of student loan debt per borrower. While the discussion of such a plan would not have been prevalent in the ’60s, we can extrapolate, with significant ease, Friedman’s views on the subject using his treatment of direct subsidization of professional education in his book as a guide.
Indeed, what is the forgiveness of student loans but the subsidization of those individuals’ education by the federal government? In Friedman’s words, such subsidization results in “an entirely arbitrary and almost surely perverse redistribution of income.” To use a contemporary political talking point to illustrate the concept: The government is increasing the tax burden on plumbers, electricians, and other trade workers to pay for other people’s gender studies, fine arts, or similarly less-than-lucrative degrees.