One of the first acts of President Joe Biden’s administration was ordering the Department of Education to pause federal student loan repayments and hold the interest rate at 0% for those in debt. Since then, President Biden has paused the student loan repayments four additional times. On the surface, it may appear like this is good policy and good politics, especially for Democrats who supposedly cater to those who simply can’t help themselves. However, a closer look at who holds this debt gives up the gambit. Democrats are indeed catering to a key constituency, but it’s mostly a constituency of woke keyboard warriors who have avoided the real world while earning 5 worthless college degrees and racking up massive debt. This student loan bailout will come at the expense of those who chose to pay back their loans responsibly or simply chose to enter a trade and start working without shackling themselves in debt.
Consider that households with graduate degrees owed 56% of the outstanding education debt, according to federal data analyzed by the left-leaning Brookings Institution. Again, in other words, President Biden’s actions primarily benefit lawyers and elite woke professor types who hold the vast majority of student loan debt. So much for the Democratic Party looking out for the working class.
There are conflicting views over whether or not the President has the authority to cancel or delay debt payments to private companies. Even Nancy Pelosi has questioned the President’s authority on loan forgiveness. “People think that the President of the United States has the power for debt forgiveness,” stated House Speaker Nancy Pelosi (D-CA). “He does not. He can postpone, delay, but he does not have that power,” she said. Pelosi argued that student loan forgiveness could be accomplished by “an act of Congress.” Speaker Pelosi may just be trying to save President Biden from the bad optics of debt forgiveness for the privileged classes. She has not historically shown a great reverence for institutional norms or the Constitution. But in this case, Biden’s out-of-touch advisers should listen to Pelosi and stand down on student loan forgiveness, claiming a lack of authority.
Most readers understand basic economics, which shows that debt is never actually “forgiven” but that, more accurately, the debt burden is simply transferred from one group to another group of people. The concept of “moral hazard” also comes into play here. Theoretically, if the debt is forgiven, institutions will rationally respond by hiking up prices, aware that the loan burden will no longer fall on the individual but the state. In addition, individuals responding to the “moral hazard” of loan forgiveness will rationally make paying back these loans their last priority, knowing a future Democratic administration is likely to bail them out. What we are left with is a snowball-like acceleration of the current spiraling student debt crisis, which is now well into the trillions.
Another simple tenet of economics is that services subsidized or controlled by the federal government tend to increase in cost. Public college tuition costs are no exception to this rule and have predictably ballooned over 80% from 2000 to 2014. Forgiving federal student loans would drive the cost of tuition even higher. To make matters worse, the left-leaning Committee for Responsible Federal Budget reported that Democrats’ proposals to forgive $50,000 in debt per individual or more would accelerate inflation, which is most voters’ top concern heading into November and is up 8% over the last year.
On April 6, 2022, the president’s statement alluded to it being the last time he intended to pause student loans. “I’m asking all student loan borrowers to work with the Department of Education to prepare for a return to repayment, look into Public Service Loan Forgiveness, and explore other options to lower their payments,” Biden said. But instead of following through, he used that exact same language again in his December 22, 2021, statement extending the program. As is the case on many issues, Biden finds himself being pushed to the left by tone-deaf members of his own party and his far-left advisors. In March, over 100 Congressional Democrats turned up the heat on Biden and urged him to “cancel a meaningful amount of student debt.”
In short, the Democrats’ calls for student loan forgiveness are as hypocritical as they are potentially economically destructive. Biden’s plan for student loan forgiveness mostly benefits a class of democrat aligned elites; it adds to inflation and raises the cost of college tuition for future students. Bailing out student loans for the elite is unfair to borrowers who have responsibly repaid their loans and leaves the 85% of Americans who don’t have student loans holding the bill.
Bob Carlstrom is President of AMAC Action