Biden's Pick to Head Economic Advisors Seen as Sympathetic to Loan Borrowers

While President-elect Biden’s choice to chair his Council of Economic Advisors, Cecilia Rouse, didn’t call for canceling student debt, she expressed awareness of the impact debt has on borrowers in a 2007 research paper.

Rouse, in a paper co-authored with Jesse Rothstein, now a public policy and economics professor at the University of California, Berkeley, found that holding student debt made it more likely for students to choose high-paying careers and eschew lower-paying ones like teaching.

In the study, Rothstein and Rouse, who is now dean of Princeton University’s School of Public and International Affairs, examined students at an anonymous university that had stopped giving out loans and only gave students financial aid through grants.

They found that every $10,000 in debt reduces by 5 to 6 percent the chances that a student at the university would take a job at a nonprofit, in the government or in education.

“Overall, it appears that college debt affects post-graduation employment decisions: students with more debt are less likely to accept jobs in low-paying industries and accept higher paying jobs more generally,” the study found.

Rouse “was among the first (maybe the first?) economists to empirically demonstrate that student debt has spillover effects on borrowers' decision making,” said Mike Pierce, policy director and managing counsel at the Student Borrower Protection Center, and formerly the lead on higher education and consumer protection at the Consumer Financial Protection Bureau during the Obama administration. The paper was a “cornerstone of the literature on the domino effects of student debt and her appointment to chair Biden's CEA is a great sign for student loan borrowers. Her academic work was WAY ahead of its time,” he said in an email.

Biden’s transition announced on Monday it plans to appoint Rouse and others to key economic posts in the administration, prior to a formal press conference today.

The idea of canceling student debt, however, remains controversial. In a working paper released Sunday, researchers at the University of Chicago’s Becker Friedman Institute for Economics argued that widespread debt cancellation would primarily help higher-income borrowers, because those on income-driven repayment plans will have their remaining balances forgiven anyway after about 25 years, depending on the plans. Expanding income-driven repayment plans to more people, they wrote, would be more likely to help lower-income borrowers than widespread debt cancellation.

When that’s taken into account, researchers Sylvain Catherine and Constantine Yannelis said, the top-earning borrowers would receive $5,944 in forgiveness, while those with the lowest incomes would receive $1,070 in forgiveness.