Joe Biden’s Great Student Loan Heist
Democrats need November votes, so taxpayers will be saddled with the loans of higher earners and more inflationary pressure.
Whenever Democrats need votes, they roll out the “free” giveaways. Today it’s “forgiving” student loans and extending the “pandemic pause” on payments for another few months. Income redistribution is not the constitutional role of government, but it nevertheless accounts for a huge swath of outlays in the modern federal Leviathan.
Joe Biden, who’s approval rating is justifiably in the toilet, is planning a big announcement today in a desperate attempt to shore up those numbers. He will eliminate $10,000 in student loan debt for borrowers with an annual income of $125,000 or less. At least that’s what the leaks are saying; the final numbers could differ when Biden wanders over to a teleprompter this afternoon.
Update: Indeed, he’s bumped the threshold to $20,000 because he’s such a generous guy.
Ironically, $10,000 is a compromise that will make few folks happy. Democrat activists wanted $50,000. The NAACP slammed the reported plan because it doesn’t go far enough. “If the rumors are true, we’ve got a problem,” said NAACP President Derrick Johnson. That’s because the NAACP estimates, “Across all racial groups, Black borrowers hold the most student loan debt despite also being consistently underserved by postsecondary institutions.” Johnson says Biden’s reported plan will leave “Black people — especially Black women — behind.”
Responsible adults of every color who’ve already paid off their own debt and don’t want to take on someone else’s advocate $0 in forgiveness. Biden loves the number zero and should’ve stuck with it here.
Not only is there no constitutional authority for such charity, the president is not the one with the power to create any new outlays. “The president can’t do it,” said noted constitutional scholar Nancy Pelosi last summer. “So that’s not even a discussion.” She added, “The president can only postpone, delay, but not forgive.” Anything of that sort would require “an act of Congress.”
What does she say now? “ .”
If you’re wondering how much all that “free” money will cost, the answer is “between $300 billion and $980 billion over the 10-year budget window,” according to estimates provided by the Penn Wharton Budget Model. Those are the same modelers that observed the Inflation Reduction Act will not, in fact, reduce inflation. The left-leaning Brookings Institution says forgiveness will be even more expensive, at $373 billion.
Paying off student loans will increase inflation, too. Indeed, just as the tax credit for electric vehicles pushes the price of EVs up, subsidizing college tuition is the reason for its high inflation rate over the last 40 years. The Committee for a Responsible Federal Budget estimates that “$10,000 of debt cancellation could add up to 15 basis points [to the inflation rate] up front and create additional inflationary pressure over time.” Additionally, “Debt cancellation would boost near-term inflation far more than the [Inflation Reduction Act] will lower it.”
One of Barack Obama’s lead economists, Larry Summers, agrees: “Student loan debt relief is spending that raises demand and increases inflation.”
A disproportionate number of beneficiaries of this taxpayer giveaway will be higher earners. Penn Wharton says, “Between 69 and 73 percent of the debt forgiven accrues to households in the top 60 percent of the income distribution.” Further inflation of college tuition will then price even more lower-income Americans out of the college market.
Democrats love to talk about “fairness” and “equity,” but this might be among the least fair or equitable transfers of wealth imaginable. Democrats want high income earners to pay their “fair share” of taxes, but evidently not their fair share of their own loan obligations.
“Forgiving student loans is unfair to students who have paid off their loans,” says Diana Furchtgott-Roth, former chief economist at the Department of Labor. “[It’s] unfair to students who have chosen less expensive community college options, [and it’s] unfair to taxpayers whose dollars are paying off the loans and who have no college education.”
Too bad for all you suckers who paid off your own loans, even if you were proud to be able to repay the obligations you signed up for in exchange for that college education. But it’s a Merry Christmas for the 43 million Americans who carry a cumulative $1.75 trillion in student loan debt, and especially the 15 million with balances below $10,000.
So why now?
Two reasons. First, the more immediate reason from a date standpoint is the August 31 deadline for the federal government’s deferral of student loan payments. That pause has already cost taxpayers between $115 billion and $300 billion (the fact that there are differing estimates is a red flag in and of itself). The pandemic has been the excuse for what Donald Trump started in March 2020, but Joe Biden has repeatedly extended it to great advantage as leverage for something Democrats want anyway.
And that’s the second reason. Democrats need to buy votes ahead of November’s midterms. We predicted after May’s extension of the pause through August 31 that this was going to be the pre-midterm calculation. Either Biden buys those votes with loan forgiveness, or he inspires bitterness against stingy Republican opponents who block it in court. Heads he wins, tails the rest of us lose.
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