If you are unfamiliar with the economic theory of the Paradox of Thrift, the shorthand version says that: even though you undertake to do the right thing financially, you could still end up being financially punished.

In a recent CNN town hall event for Democratic Presidential hopefuls, Senator Elizabeth Warren, promised she would cancel up to $50,000 in student loan debt for 42 million Americans. That promise is on her website. Of course, she isn’t the only one demanding we tackle student debt.

An article by Lindsey Burke at the Heritage Foundation outlines many reasons why this policy is not the ‘good thing’ it may seem. And she is far from alone in that view.

Burke’s article highlights the work of a number of academics and organizations, including the think tank The Urban Institute, which show why and how this is bad policy. The Institute found that most student debt is held by the wealthiest families and individuals:

“The top 25% of American households by income hold nearly half of all student debt—and the bottom 25% holds just a tenth of it.”

The study further points out that while those with an Associate Degree represent 33 per cent of student loan borrowers they have only 18 per cent of total student debt. For those with Bachelor Degrees, the figures are 32 percent of borrowers and 25 percent of the debt. While those who undertook graduate degrees represent 35 per cent of total borrowers but 57 per cent of the total student debt.

If you care to read around the issue it becomes even more interesting.

A research project under the title Opportunity Insights out of Harvard found that roughly one in four of the richest students attend an elite college. Or, to put it another way, at 38 colleges in America, including five in the Ivy League, more students came from the top 1 percent of the income scale than from the entire bottom 60 percent.

As Carlo Salerno of CampusLogic points out, students choose to take on college loan debt, and are not assigned that debt. So loan forgiveness “unfairly rewards the person who borrows to get a Ferrari over the one who got a Kia.” That analogy seems spot on. And let’s not forget, debt relief would reward the high-cost inefficient providers as opposed lower cost, nimble innovators.

Also, consider this. A 2018 survey by InsideHigherEd of university admissions leaders found that, “Forty-two percent of admissions directors at private colleges and universities said that legacy status is a factor in admissions decisions at their institutions. The figure at public institutions is only 6 percent.” Keep in mind most of those private institutions constitute the elite, and most expensive, universities in the US.

So what do all these things taken together mean? It leads us back to the paradox of thrift. Some students take the choices they have more seriously than others. They research; they determine what they need to do with the financial resources available to them. They turn their backs on the elite institutions and they very often seek alternative learning pathways or experiences, with defined career goals in sight. What we need is for all students to make serious choices, or at least understand the implications of the choices they make, and have the tools to find the college to help them fulfill those ambitions, or have universities and colleges find them.

There are lots of very good colleges offering reasonably priced programs of study, many work related or employment focused. They represent a good investment with real opportunities for fulfilling employment thereafter. What is more, those more expensive elite colleges are not the be-all and end-all, they are not the only means to a successful, rewarding life and career.

A debt relief scheme would reward those people who didn’t make careful decisions based on cost and outcomes. It would reward those colleges that fail to control their cost base and that offer programs of study which don’t provide value for the cost of study. It would reward those who took the path of least resistance –the legacy students.

Furthermore, it wouldn’t solve the real problem in the higher education sector which is the methods, means and metrics by which people select the institution they wish to study at. This is one of the reasons we have high drop-out rates than ever before, yet prices continue to rise –supply side economics would suggest the opposite should happen.

The key to fixing the higher education market, and ultimately the issue of unusually high personal debt, is enabling students to have the full range of options before them so they can make smarter choices and find the right institution for their career and financial needs. Anything else will merely prolong the dysfunction in the market which harms learners, as well as dynamic, innovative, and cost efficient institutions.