Not only is the plan expensive and an abuse of power, it also alienates the taxpayers who will foot the bill.
President Joe Biden recently announced a $10,000 federal student loan rebate for borrowers earning less than $125,000 a year or couples earning less than $250,000, through a recent executive order. Additionally, the plan also waives up to $20,000 for Pell Grant recipients. Pell grants are provided by the federal government – they do not have to be repaid, but recipients often take out additional loans to pay for higher education. Biden’s plan would provide full debt forgiveness for about 15 million borrowers and provide some relief for up to 40 million people. In addition to the bailout, the moratorium on student loan repayments – a policy put in place at the start of the pandemic – has again been extended until the rest of the year. This is the seventh extension of the payment break.
How much does loan forgiveness cost? Up to $1 trillion, according to an analysis by the Wharton School of Business. Who pays for this? Hard-working taxpayers who bear no responsibility for the growing student loan debt. In all respects, form and form, this is the wrong decision by the administration. It’s extremely costly and politically insane, not to mention inflation, at a time when the consumer price index has risen at the fastest rate in 40 years.
The costs are staggering. Penn Wharton’s budget model estimates the plan will cost around $600 billion. Lenient use of the new revenue-driven reimbursement program could increase costs by another $450 billion, bringing the total to more than $1 trillion. The results would be a temporary decrease in total student loan debt from $1.6 trillion to $1.1 trillion, returning to its current level by 2028. The President justified the costs by suggesting that “ there is a lot of deficit reduction to pay for programs many times past.’ He is correct that there has been historic deficit reduction, but that reduction stems from record deficits. large deficits and the country still has more than $30 trillion in debt.President Biden is misleading the American people when he claims that part of this plan is “paid off”.
Politics is far from subtle. Biden’s decision to extend the debt repayment moratorium again is a Hail Mary attempt ahead of the midterm elections, in which polls predict Democrats will lose their majority in the House. At this point in the campaign, the moratorium will not help Democrats gain ground. Debt cancellation, on the other hand, is a downright terrible political calculus that could give Republicans a boost in the polls. About 60% of American adults do not hold college degrees. People with college degrees have higher lifetime incomes than those without, but they are the ones who benefit from the bailout. This makes the 60% of voters without a university degree, as well as a significant number of graduates who paid their debts responsibly, foot the bill. To make matters worse, Biden’s plan calls for canceled debt to be tax exempt. The administration and the Democrats in Congress who support this plan force struggling Americans to support a relatively small portion of the population without any benefit in return. This can only hurt midterm Democrats.
This plan is flawed, but is it even legal? Despite the unprecedented overshoot, that could be the case. Normally, the executive branch cannot spend money without Congress first appropriating the funds. The Biden administration is manipulating the 9/11-era HEROES Act that allows the Department of Education to cancel debt during a national emergency, such as a terrorist attack on US soil. The rationale used in this case is the COVID-19 National Emergency Declaration. Two and a half years after it began, the national emergency is still in place, having been extended until February 2023 – presumably to take advantage of additional powers given to the executive. The population is widely immunized, hospitalizations and deaths are low thanks to effective treatment options, and the public is overwhelmingly ready to move on. The national emergency declaration is no longer necessary, but Biden continues to take advantage of it.
When it comes to inflation, canceling student debt alone doesn’t have as much of an impact on rising prices as some expect. In his speech announcing this plan, President Biden explains that canceling debt while simultaneously resuming payments is fiscally responsible. But the CPI is up 8.3% from a year ago, and adding even more spending to what has already been spent during COVID-19 would only make matters worse. Over the past few months, the Federal Reserve has finally taken a tougher stance on inflation control, but the administration’s handouts are directly thwarting the Fed.
The Biden administration is right to make this issue a priority — student debt is a huge problem in this country, and it’s setting people up for monthly payments for life. But canceling student debt would compound the underlying problems by creating a tuition-debt spiral. Colleges and universities have increased tuition much faster than the rate of inflation, and most people still believe the cost of a college education is worth it. This forces students to borrow far more money than they are able to repay, currently amounting to a staggering $1.6 trillion nationally. If students who take out loans have even a portion of their tuition guaranteed by the government, it is in the interests of colleges to raise tuition even further. In order to resolve the debt crisis, global action is needed. Federal loans should have lower interest rates to ease the burden on students after graduation. They should also have certain academic progress requirements, such as those relating to financial aid programs. Finally, there should be incentives to attend community colleges and trade schools. These suggestions are just a starting point, but they would do much more than the current Biden plan.
Given the high costs, the federal government must resume payments and stop canceling the debt. Reality checks can be tough, but when reality costs trillions of dollars, it’s a sign that something needs fixing.