Elizabeth Warren released a plan to forgive a significant chunk of student debt earlier this week. Vox describes the plan thusly:

Cancel $50,000 in student loan debt for every person with household income under $100,000, and give “substantial debt cancellation” to every person with household income between $100,000 and $250,000. (Those making above $250,000 wouldn’t qualify.)

The design here shows that Warren is sensitive to critiques that student debt is positively correlated with income, making debt forgiveness “regressive” in some sense of the word. However her solution to this problem — to phase out forgiveness for those with household incomes over $100,000 — has at least one problem: it imposes a rather steep penalty on married people.

A single college graduate is unlikely to have a household income over $100,000, but many married college graduates do have such an income. Warren’s plan strangely freezes them out of debt forgiveness even as they may have twice as much debt.

Horizontal Equity

The main critique of Warren’s plan so far in the discourse is not the technical one provided above. Instead, critics argue that the plan is unfair to those who took on significant debt and then drained their potential savings to pay it off.

A number of prominent online commentators dismissed this critique as ridiculous, but it really isn’t. People who drained their net worth to pay for college carry the scars of doing so in their personal finances even if they don’t currently carry student debt. Filling in the financial hole caused by unfree college for only those who currently have a student debt balance is thus horizontally inequitable, meaning that it treats similarly-situated people very differently.

The reason people often don’t understand this is because the issue of student debt forgiveness is under-theorized. There is a vague sense that student debt is bad, but not much clarity on why exactly it is bad. Or, more precisely, there is not much theorizing about what harm student debt forgiveness is aiming to alleviate, and so people wind up all over the map when trying to argue about it.

The most coherent theory of student debt forgiveness is that it is a reparations program for victims of unfree college. The left generally believes that college tuition should be set to $0 and that students should receive additional grants for living expenses such that the out-of-pocket cost of college is low to nothing. But this is not how the college financing system has operated historically. Those who went through the old college system thus suffered a harm and are owed reparations.

But what is the precise amount of the harm they suffered? The answer is not the amount of their current student loan balance. It is not even the amount of student debt that they left college with. Rather, the precise amount of harm suffered by victims of unfree college is the amount of money that they and their family spent on unfree college in excess of what they would have spent on free college.

To understand why this is the precise calculation of harm, imagine a student who was charged $40,000 for a college education beyond what she would have been charged if college has been subsidized to the appropriate amount. The harm of this charge is that it took a $40,000 chomp out of that student’s net worth. Importantly, this $40,000 chomp took place regardless of how she financed her college and the effect of this $40,000 chomp will permanently linger on her personal balance sheet for the rest of her life, unless of course she receives reparations that make her whole.

If this student took on $40,000 of debt to finance college and she still holds that debt, then we see quite clearly that her net worth is $40,000 lower because of unfree college. But the same is true if she took on $40,000 of debt and then subsequently paid it off: to make those payments, she had to forego building up $40,000 of savings and therefore has a net worth that is $40,000 lower because of unfree college.

If this student worked during school in order to cover the $40,000 cost, then she still suffered a $40,000 harm: had she not had to make those payments, she could have used the wages from her student job to build up $40,000 of savings.

Indeed, even if the student’s parents paid the $40,000 in order to keep her from taking on debt, her net worth is still $40,000 lower than it could have been if her parents did not have to pay that amount and therefore could have transferred the $40,000 to her in another way, such as in cash or down payment assistance.

No matter how you slice it, you see clearly that the harm of unfree college is how much people had to drain their net worth to pay for it, not how much their current student loan balance is. People who complain that only doing student debt forgiveness is unfair may not be able to cleanly articulate why they think it is, but I think it’s clear that it is this horizontal inequity that they are getting mad about.

Policy Solutions

Once you understand what the harm of unfree college is, the ideal reparations amount becomes easy to identify: victims of unfree college should receive a check equal to the amount they had to spend on unfree college. The problem of course is that, like many other reparations proposals, it would be impractical, if not impossible, to administer such a program since we don’t have records of how much money each person paid for unfree college.

Since the ideal reparations program is not administrable, the question turns to what we could do instead. I have not thought much about this question, but some possibilities include:

1. Reparations Schedule for Each Public College. The Department of Education could create a schedule that provides a reparations amount for each public college for each year of attendance. So “University of Texas 2013” would have a certain dollar amount and “University of Maryland 2005” would have a dollar amount. Those who attended the schools during those years would be eligible for the dollar amount. For practical purposes, it’d make sense to limit this to perhaps the last 20 years.
2. Universal Reparations Lump Sum. If producing the schedule is too complicated administratively, then you could also declare a universal lump sum for victims of unfree college. To be eligible, individuals would only need to have attended college during the covered period.
3. Refunding Total Student Debt Incurred. Instead of giving people up to $50,000 based on their current student loan balance, as Warren’s plan does, you could give them up to $50,000 (or some other sum of money) based on the total amount of student debt they ever incurred. This would ensure that people who have already repaid their loans also benefit from the reparations program. If we limit this program to those who graduated in the last 20 years or so, I imagine that the records needed for such a program still exist.

These are not ideal programs of course, but they more closely match the purpose of unfree college reparations than a program that only forgives current student debt balances. People might be tempted to roll their eyes at those who raise these issues, but stoking resentment through unequal treatment of similarly-situated people is a risky game to play.