Federal student loan repayment requirements were suspended several times since 2020 due to the economic challenges caused by the pandemic, regardless of whether the borrower’s job was impacted by COVID-19. On August 24, 2022, the Biden-Harris Administration took the moratorium on student loan repayments one step further by announcing their “Student Debt Relief Plan.” The plan, which is being implemented without a vote by Congress, provides up to $20,000 in loan forgiveness for federal student loan borrowers. The program is not limited to the poor. The national median family income is barely $80,000. Meanwhile, the Biden plan benefits borrowers whose household income is less than $250,000, or individual income is under $125,000. In other words, those with the highest income trajectory are eligible to have their debts wiped away, at taxpayer expense.
According to the nonpartisan Committee for a Responsible Federal Budget, the program is estimated to cost the government roughly half a trillion dollars. To wrap your brain around that amount of money – there are 12 zeros are in a trillion dollars: $1,000,000,000,000. In addition to the debt forgiveness plan, the administration also extended the COVID moratorium on student loan repayments for an additional four months, at a cost of another $20 billion. An analysis performed by the prestigious Penn Wharton School of Business indicates that approximately 71% of the debt forgiven benefits the top 60% wealthiest households in the country.
Democrats have been pushing for student debt relief for years. How is this program fair to the millions of blue-collar Americans who chose to enter a trade or start their own business instead of attending college? Will the government also offer to pay off the loans that they took out to purchase their first set of tools? Doubtful. How is this program fair to those Americans who worked to pay for their own education, or scrimped and saved to pay for their children’s college tuition? Personally, I was lucky enough to start saving for my children’s education shortly after they were born. Some of my neighbors did not have that luxury. However, others chose to take expensive vacations and lease pricey cars instead of responsibly saving for their child’s education. Biden’s student loan plan is a boon for those who acted irresponsibly and sticks those who paid their own way with the bill.
Many economists forecast that the cancellation of student debt will increase inflation significantly, since more dollars will flood the market, chasing too few goods. Moreover, the move could encourage colleges to raise their already sky-high tuition rates even more. Larry Summers, the Treasury Secretary under the Clinton Administration, pointed out that increasingly generous federal subsidies (including loans) have prompted universities to dramatically increase their tuition and fees since 1991-92. My own alma mater, Villanova University, now charges over $77,000 annually for tuition, room, and board. When I graduated in 1991, the tuition was approximately $14,000 – a 450% increase in 30 years! Canceling more student debt is sure to make a college degree even less affordable.
One argument being floated in favor of student loan forgiveness is to compare it to the paycheck protection program [“PPP] instituted during the COVID-19 pandemic. That comparison simply does not hold water. During the pandemic, the government forced businesses to close and offered loans to encourage them to keep workers employed. Nobody is forced to enroll in an expensive university and/or major in a useless subject which is unlikely to yield a good paying job which would enable a student to pay off his or her own student loans. This massive give-away to student loan recipients bears no resemblance to the PPP, which helped businesses to survive when the economy was placed into an artificial coma by those state governments which forced people to stay home during the pandemic.
The Student Debt Relief Plan may have another unintended consequence: encouraging borrowers to postpone entering the workforce on a full-time basis, since they will no longer be required to work to pay off their debts. Businesses are already having difficulty hiring qualified employees. This program will likely exacerbate the unprecedented labor shortages.
One cannot turn on the evening news without hearing some commentator or politician lament about our democracy being in danger. It certainly is – but not because any citizen is being denied the right to vote, which would violate federal law. The following quote has been attributed to both Alexis de Tocqueville and Alexander Fraser Tytler:
“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. . .”
Perhaps it is hyperbolic to insinuate that a politician is attempting to buy votes with a half-trillion gift out of the treasury, three months prior to an election. However, sometimes the simplest explanation is the correct one.
Remember this ill-conceived plan in November and vote Republican.
Good to know.
Thx