Student loans

Mark Glennon | Raoul’s call to cancel student debt targeting someone who helped create it | Guest Comment

This week, Illinois Attorney General Kwame Raoul urged President Joe Biden to completely forgive federal student loan debt owed by every federal borrower in the country.

All $1.7 trillion. For everyone, rich or poor. No questions asked.

And who created the student loan mess? Both sides bear the blame, but a central villain was none other than the guy Raoul wants to clear the debt – Biden.

Start with the simple but undeniable injustice of Raoul’s proposal, although there is much more to cover than the injustice:

  • What about the parents who sacrificed to pay for their education instead of borrowing?

What about the students who chose to work and earn more while studying instead of borrowing?

What about graduates who are slow to spend or start a family to be able to repay their loans?

  • What about graduates who left lower-paying jobs that they might have found easier or more rewarding, choosing more demanding jobs with better pay to cover loan repayment?

These questions are entirely rhetorical because there is no reasonable answer to the abject injustice of favoring those who have sacrificed over those who have not.

To compound the injustice, those who sacrificed would be forced to foot the bill for those who did not – $1.7 trillion. It’s not really debt forgiveness. It is a transfer of debt from student borrowers to federal taxpayers. The loss to the federal government would end up being another addition to the federal deficit, which taxpayers will eventually have to deal with.

Raoul claims in his letter that his proposal would be “one of the most impactful racial and economic justice initiatives in recent memory.” Widespread student loan debt forgiveness, he says, “is not just a matter of economic justice, but also racial justice.”

It is wrong on both counts. Loan cancellation would be regressive, particularly if student debt is canceled in full, with no cap on amount or income. The windfall from Raoul’s proposal would go mainly to those who are already well off.

Student debt is actually “the overwhelming majority of higher-income and more affluent Americans, so it’s who gets the money as part of a widespread student loan forgiveness plan,” according to lead researcher Adam Looney. at the left-leaning Brookings Institution and student debt specialist.

“If you look at who has student loans,” he told CBS, “it largely reflects who goes to college and college in the United States, and college and college are made up overwhelmingly of people from upper-middle class or upper-income families.

Maya MacGuineas, chair of the Committee for a Responsible Federal Budget, a nonpartisan public policy advocacy group, said canceling college debt would disproportionately benefit better-educated people.

“The poorest people in the country don’t have student debt,” she says.

Limiting the amount of debt forgiveness and imposing income limits would make forgiveness less regressive, but not by much. A recent study by the Federal Reserve Bank of New York found that even if you cap forgiveness at $50,000 per borrower, low-income neighborhoods receive about 25% of the debt forgiveness while high-income neighborhoods receive about 30% discount.

And even if you capped the rebate at $10,000, 67% would go to majority white neighborhoods, according to the study. None of this apparently matters to Raoul. He wants to cancel all federal student debt regardless of income, which would be even more regressive and less helpful proportionally to minorities.

Rising inflation is another likely consequence of canceling $1.7 trillion in debt.

“On the sidelines, it would put more money in the households that benefit from the aid. And those households are more likely than not to use that extra cushion in their monthly budget to buy more things or buy more services,” an analyst at investment bank Raymond James told CBS. “So if you were to put it in one bucket or another, it’s more in the bucket to contribute than not to contribute to inflation.”

Finally, it should bother an attorney general, in particular, that he’s asking Biden to do something that’s probably illegal. Where does one man get the power to erase $1.7 trillion in debt owed to the nation? Probably nowhere, according to a top lawyer in former President Barack Obama’s Education Department. As the Wall Street Journal recently reported, this lawyer wrote that “if the issue is litigated, the most compelling analyzes tend to support the conclusion that the executive branch probably does not have the unilateral power to engage in a massive cancellation of student debt”.

Student loan debt is unquestionably a heavy burden for many people and a drag on the entire economy. How did we come here? The government is largely responsible for the problem that the government is now being asked to solve.

Both sides share that blame, but Biden himself is the main culprit. The full story is nicely told by two leftist sources, The Guardian and The Intercept. The columns in both publications cover the full story well, which is quite long, but the key mistake came in 2005 when the Bankruptcy Code was amended to make student loans non-dischargeable. This greatly reduced any discipline as to how much would be loaned and to whom, and it was in bankruptcy where Biden’s role was critical.

From the Guardian:

“The Republican-led bill tightened the bankruptcy code, triggering a huge giveaway to lenders at the expense of indebted student borrowers. At the time, he faced fierce opposition from 25 U.S. Senate Democrats. But it still passed, with 18 Democratic senators breaking ranks and voting in favor of the bill. Of those 18, one politician stood out as a particularly enthusiastic champion of the credit unions who, it turns out, had given him hundreds of thousands of dollars in campaign contributions — Joe Biden.

And from The Intercept:

“Biden was one of the most enthusiastic supporters of the disastrous 2005 bankruptcy bill that made it nearly impossible for borrowers to reduce their student loan debt. … Biden backtracked on legislation under the Bush administration; it passed the Senate in 2005 by a vote of 74 to 25, with most Democratic lawmakers voting against. …George W. Bush signed it into law and private student loan debt skyrocketed as a result of its passage. The total amount of private student loan debt more than doubled between 2005 and 2011, from $55.9 billion to $140.2 billion.

The surge in student loans that followed the loan bankruptcy sheltering in turn triggered other problems. For-profit colleges, some of which were predatory, drove up the bills as best they could. Traditional colleges and universities have added suffocating levels of bloat, bureaucracy, and dumb new majors with no professional future, and it continues without consequences.

Give credit where credit is due. The main opponent of protecting student loans from bankruptcy was Sen. Elizabeth Warren, D-Mass., who lost what was a direct fight with Biden.

Maybe there is someone else who knows about Biden’s role. Vice President Kamala Harris is now reportedly “increasingly reluctant to be part of the public face of the administration’s response,” Politico recently reported. She declined to participate in a Biden administration video about the suspension of repayment obligations, sparking a bit of an uproar.

Who knows, but maybe Harris knows the backstory of the student loan crisis and Biden’s role in it. Maybe, just maybe, she thinks the story will start to be told more often. If so, she’s wise to stay away.