President Joe Biden recently announced $10,000 in federal student loan forgiveness for borrowers earning less than $125,000 annually, or for couples earning less than $250,000, through a recent executive order. In addition, the plan also cancels 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 complete debt cancellation for approximately 15 million borrowers and provide some relief for up to 40 million people. In addition to the bailout, the moratorium on student loan payments — a policy put in place at the beginning of the pandemic — was once again extended through the rest of the year. This marks the seventh extension of the payment pause.
How much does loan forgiveness cost? Up to $1 trillion, according to an analysis by the Wharton School of Business. Who’s paying for it? Hardworking taxpayers who bear no responsibility for ballooning student loan debt. In every way, shape and form this is the wrong move by the administration. It is wildly expensive and politically foolish, not to mention inflationary, at a time when the Consumer Price Index has increased at the fastest rate in 40 years.
The costs are staggering. The Penn Wharton Budget Model estimates the plan will cost around $600 billion. A lenient use of the new income-driven repayment program could increase costs by an additional $450 billion, bringing the total to over $1 trillion. The results would be a temporary decrease of total student loan debt from $1.6 trillion to $1.1 trillion, only to return to its current level by 2028. The President justified the costs by suggesting that “there is plenty of deficit reduction to pay for the programs many times over.” He is correct in saying there has been historic deficit reduction, but the reduction is coming from record high deficits. The government still has large deficits, and the country is still more than $30 trillion in debt. President Biden is misleading the American people when he claims any part of this plan is “paid for.”
The politics are far from subtle. Biden’s decision to again extend the moratorium on debt repayment is an attempt at a Hail Mary before the midterm elections, in which polls predict Democrats will lose their majority in the House. At this point in the campaign, the moratorium won’t help Democrats gain ground. The debt cancellation, on the other hand, is an outright terrible political calculation that may give Republicans a boost in the polls. Approximately 60% of American adults do not hold college degrees. People with college degrees have higher lifetime earnings than those without, yet they are the ones getting the bailout. This makes the 60% of voters without college degrees, as well as a significant number amount of graduates who paid off their debts responsibly, foot the bill. To make matters worse, Biden’s plan calls for the canceled debt to be tax-free. The administration, and the Democrats in Congress who support this plan, are forcing struggling Americans to support a relatively small portion of the population with no return benefit. This can only hurt the Democrats in the midterms.
This plan is flawed, but is it even legal? Despite the unprecedented overreach, it might be. Normally, the executive branch cannot spend any money without Congress appropriating the funds first. 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 American soil. The justification 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 through February 2023 — no doubt to take advantage of the extra powers afforded to the executive branch. The population is largely vaccinated, hospitalizations and deaths are low due to successful treatment options, and the public is, overwhelmingly, ready to move on. The national emergency declaration is no longer necessary, yet Biden continues to take advantage of it.
As for inflation, the student debt forgiveness alone does not impact rising prices as much as some are projecting. In his speech announcing this plan, President Biden explains that forgiving debt while simultaneously resuming payments is financially responsible. But the CPI rose 8.3% from a year ago, and adding even more spending to what has already been passed during COVID-19 would only make things worse. In recent months, the Federal Reserve has finally taken a stronger stance in the fight against inflation, but the administration’s handouts are directly counteracting the Fed.
The Biden administration is right to make this issue a priority — student debt is a huge problem in this country, and it sets people up for a lifetime of monthly payments. But canceling student debt would worsen underlying problems by creating a spiraling pattern between tuition and debt. Colleges and universities have been raising the cost of tuition much faster than the rate of inflation, and most people still believe that the cost of a college education is worth it. This is causing students to borrow much more money than they are capable of repaying, which is currently amounting to a staggering $1.6 trillion nationwide. If students who take out loans are guaranteed even a portion of their tuition by the government, it is in the best interest of colleges to raise tuition even higher. In order to resolve the debt crisis, there needs to be comprehensive action. Federal loans should have lower interest rates so that there is less of a burden on students after they graduate. They should also have certain academic progress requirements, such as those for financial aid packages. Lastly, 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 restart payments and stop canceling debt. Reality checks can be hard, but when reality costs trillions of dollars, it’s a sign that something has to be fixed.
