AMAC Exclusive – By Tom Campbell
On Wednesday, President Joe Biden announced he is extending for the fifth time the “pause” on student loan payments and is also unilaterally canceling up to $10,000 of loans for borrowers making less than $125,000 per year. While liberals heralded the move as a major victory, the new policy marks the latest assault on the rule of law by Biden, while the social and economic fallout from the policy may prove to be an anchor on Democrats’ prospects this fall.
For more than two years now, Americans with student loans have not had to make their monthly payments thanks to a moratorium that began in March 2020 as a part of the COVID-19 pandemic-relief policies. But despite having moved out of the pandemic phase and away from economy-destroying lockdowns, Biden has refused to order the resumption of payments after repeatedly promising student loan forgiveness on the campaign trail in 2020.
Following Biden’s election, far-left members of Congress, from Senator Elizabeth Warren to Representative Alexandria Ocasio-Cortez, aggressively lobbied for canceling student loans. Yet thanks to a 50-50 Senate and substantial Democrat opposition to wide-scale student-loan cancelation, there has been no vote on legislation to do so this Congress. As a result, those in favor of the policy turned to pressuring Biden to do it through executive action.
Conservatives have argued that by bypassing Congress in this way, Biden is violating the Constitution, which states: “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” Student loans are funded by appropriations made by Congress and drawn from the Treasury. The President unilaterally writing off more than $300 billion in obligations to the Treasury in the absence of Congressional action is therefore a brazen defiance of the law, and flies in the face of the Constitution’s separation of powers.
However, supporters of this claim of executive power counter that Congress has already delegated to the Secretary of Education the authority to wipe out student loans. They cite a provision in the 1965 Higher Education Act that empowers the secretary to “modify, compromise, or waive” student-loan debts.
But it is far from clear that this would effectively allow the executive to authorize expenditures of up to more than $1.6 trillion, the total amount of federal student debt. Likely, the more “traditional” interpretation of the law is that it grants the Secretary authority to provide relief in specific situations based on individual determinations – not mass cancellation of debt. Even Biden himself has previously indicated he does not believe Congress intended to give the executive the authority to enact a wide-scale cancelation of student loans, stating in February 2021, “I don’t think I have the authority to do it by signing with a pen.”
But even if Biden’s actions were legally sound, they would still be outrageously unfair and reckless. By every metric, student loan cancellation is an enormous wealth transfer from the working class to upper-middle class Americans. Only one in three American adults has a bachelor’s degree, and college graduates make nearly 85 percent more than those who have only a high school diploma. Furthermore, 69 to 73 percent of the debt relief will go toward borrowers in the top 60 percent of the income distribution. Ultimately, this policy will disproportionately benefit the wealthy, as lower-income taxpayers will be forced to effectively pay off loans they didn’t take out, either through higher taxes or more inflation.
No doubt many Democrats will see Biden’s actions as a political win going into November, but they may be in for a rude awakening. Giving handouts to their wealthy constituents at the expense of the working class may cause significant political blowback, especially if the action fails to turn out younger voters as Democrats are apparently hoping. The move may instead just be motivation for the majority of Americans without a college degree to turn out and vote Republican.
The policy could also cause trouble for Democrats by creating skepticism of the federal student-loan program as a whole. Seeing the student-loan cancelation for what it is—a huge giveaway to upper-income Americans—could lead to consensus among voters that continued federal loan support for higher education is not worth it. After all, the cancelation of $10,000 of debt per borrower could be the first step toward canceling $50,000 of debt per borrower (as Senate Majority Leader Chuck Schumer and Senator Elizabeth Warren have called for). And with the moral hazard created by Wednesday’s debt cancelation, taxpayers may fear even more students taking out riskier, irresponsible loans, which in turn could again be transferred to non-borrowers down the road.
Many borrowers who have dutifully paid off their loans over years or even decades will also likely feel disaffected as a result of the policy. Moreover, those planning to attend college in the coming years – and their families – will likely be asking where their $10,000 is.
By acting like a king, Biden is untethering executive power even further from constitutional restraints, while also putting congressional Democrats in a potentially precarious situation. “Suppose… your child at this time decided they did not want to go to college but you’re paying taxes to forgive someone else’s obligations. You may not be happy about that,” Speaker Nancy Pelosi acknowledged last year. If the Democrat Speaker of the House can figure that out, so can voters – and that could bode ill for any Democrat on the ballot this fall.
Tom Campbell is the pen name of a Washington, D.C.-based professional with more than a decade of policy and legislative experience at the state and federal levels of government.