Category Archives: urban revitalization

The Downside of Incentivizing College Loan Debt or Home Debt For Educated Workers

Garance Franke-Ruta recently wrote a piece for the Atlantic suggesting that using debt reduction to incentivize young, debt-strapped professionals could be a good way to increase urban populations, especially in distressed cities.  Given that the country has a serious student loan debt problem AND a number of distressed cities, it seems like the suggestion could be a way to “kill two birds with one stone.”  A policy like that could help reduce student loan burdens as well as bring people to a city that would not have otherwise lived there.

In fact, policies like this have been close to passing.  Recently the New Jersey Legislature considered providing refundable tax credits (that would turn into student loan payments) to college educated residents that moved to either Jersey City, Camden, or Trenton.  New Jersey proposed giving new college educated residents $7,000 for two years of residence in one of the three cities.  (The program did not pass).

On first brush a policy like this – paid for either by federal, state, or local government – seems to make a lot of sense – it could reduce student loan debt and get people to move into a city.  But from both the national, state, or local government perspective, there are serious flaws in the implementation.  I’ll outline a few of them for each level:


Regressivity – The main critique I have at the national level is that a program like this is regressive.  It gives money to college graduates who are likely to make more money than their non-degree holding counterparts.  National policy – with respects to higher education – are about making it more affordable, therefore more equitable and accessible to more people.  The country does have a student loan debt problem, but there is a good chance that providing money to solve the debt problem without addressing the cost of education would not do this.  As incentives were more available, college costs will simply “price in” the incentive and  outpace any tax credit or debt reduction programs.  Student debt is a symptom of flawed student finance.

A progressive program would increase access to college for people who could not afford it, thereby increasing access.  The proposed program in the Atlantic rewards people who were able to finance and finish college – a group that least needs incentives.  This is a similar critique to those who would like to see the mortgage interest deduction eliminated or phased out at higher incomes.

Congressional District Politics – urban policy has been limited because of Congressional District politics.  How would a program like this pick the “winning” cities where incentives would be provided and “losing” cities where they weren’t.  Hopefully Congress would use some type of objective criteria to identify the cities most in need of highly educated new workers and residents or that would benefit most from their presence.  (Most in need and most likely to benefit are not synonymous either).  But given the history of other urban related policies like Clinton’s Empowerment Zone programs, we should suspect that twice as many cities will be designated with half as much funding.  Alice O’Connor gives a good review of this in her 1999 essay, “Swimming Against the Tide.”

State and Local

State and local policies are similar so I will discuss them at once:

The Enduring “But-For” Problem – young adults want to live in built up, walkable urban areas.  Urbanist and urban planning media presents some evidence of this phenomenon constantly.  Economic developers are criticized for giving unnecessary incentives to businesses that would have come to an area with or without any government intervention.  This is called the “but-for” problem.  Tim Bartik, an economist at the Upjohn Institute for Employment Research, suggests that incentives can be beneficial if a company would not have located in the area otherwise.

If states or cities pay young college educated workers to live within their boundaries they should be sure that the new residents they attract would not have moved to the area “but-for” the student loan forgiveness.  The proposed programs seem to suggest that incentives between $7,000 and $20,000, will be paid one time, in the future after a certain length of residency.  Young college educated adults are smart and intuitively discount future payments, further reducing the value to individuals.  The young bright people might not be swayed to move to an area just by the sum, but would take advantage if they moved to the area for other reasons.

Buffalo Hunting – this is similar to a main criticism of economic development.  Another important assumption of these programs is that a small amount of money will induce the new residents to stay for a long time.  If people stay for a long time, they will ultimately pay their incentive back through taxes and other economic and social benefits.

Economic development sees a small set of “footloose” businesses that move from one locality to another, constantly taking advantage of different tax incentive programs.  Individuals could do this even more easily.  College educated workers are the most mobile people in the workforce and can move more easily than any other workers.  Theoretically, someone could bounce from one residential student debt incentive to the next and pay off all of their loans.  This would be great for that individual, but every municipality or state that gave them money under the hope that they would pay their money back would be left without much return on that hope.  “Clawbacks” or provisions that protect the locality would need to be stronger, but they would reduce the efficacy of the incentives.


Helping distressed cities and making college more affordable and accessible are very important, but I am not sure that incentivizing completion and residential location in this way works to solve the issue.