Student Loan ‘Forgiveness’ Another Slight to Blue-Collar Workers
The Biden administration has announced that the federal government will enact a $10,000 per borrower student loan bailout for those with annual incomes as high as $125,000 (or $250,000 for households). This legally dubious action represents an upward redistribution of wealth from hard-working taxpayers toward the higher-income minority of Americans who have a college degree, all the while doing nothing to solve the ongoing challenge of rising college costs.
The Penn Wharton Budget Model has estimated this move could shift more than $300 billion from the borrowers who individually benefit from their college education to taxpayers who gain nothing in exchange for footing the bill. One estimate suggests that middle-class families will be on the hook for upwards of $1,500. And for what? For more inflation, higher tuition and terrible precedent.
The rationale for this bailout is based on a faulty premise — that the typical college graduate is drowning in student debt and unable to pay or that most of the student debt is held by lower-income households. Neither is true. The typical borrower leaves college with less than $25,000, which is nothing to say of the many others who work their way through college without taking out debt — or have already paid off their debt.
For most, the lifetime value of their degree far exceeds this amount, implying that such borrowers should be required to pay back their loans themselves. Blanket loan “forgiveness” thus inevitably involves a handout to people who are perfectly capable of paying back their debt, which is an insult to the many students and families who sacrificed to either pay for college without debt or repay their loans the old-fashioned way.
It is also a slight to workers who took an alternate career path that didn’t include higher education and student debt.
Student debt bailouts to people who often do not need help are bad enough in normal times but doing so when inflation is already at 40-year highs is economic malpractice. Such bailouts effectively amount to another inflationary wave of stimulus on top of the inflationary spending and tax hikes that the Biden administration just signed into law.
Such bailouts also sow the seeds for higher college tuition and a super-sized re-run by encouraging the expectation among future college students that their debt, too, might be transferred to taxpayers with the stroke of a pen. When students have an artificially inflated willingness to borrow, colleges can charge higher prices, regardless of whether that extra money goes to improving quality or if it goes wasteful administrative bloat and excessive campus amenities.
Better places to look to fix the college affordability crisis include invigorating competition by overhauling our broken accreditation system, linking financial aid to student outcomes, and increasing accountability at U.S. higher education institutions. This accountability comes by ensuring that they have more skin in the game if their students do poorly upon leaving college and end up defaulting on their debt repayment obligations.
This student debt bailout is also an illegal exercise in executive overreach and a direct affront to blue-collar workers. Congress established student loan programs, making credit available to families at very favorable rates, with the clear expectation that borrowers would repay those loans.
The cancellation of student loan debt announced Wednesday is an unconstitutional exercise of power that wildly exceeds the authority delegated by Congress to the Secretary of Education — a position President Joe Biden seemed to endorse before he took office. Congressional leaders agree. Per House Speaker Nancy Pelosi: “The President can’t do it… that’s not even a discussion.”
Wednesday’s announcement will do nothing to solve the college affordability crisis. On the contrary, student loan balances will continue to balloon for millions of current students when fall tuition bills come due.
And the last thing America needs is another expensive entitlement, especially one that benefits higher-income households and has little to do with focusing efforts on alleviating genuine hardship. While millions of borrowers will now see their student debt reduced by $10,000, the Biden administration should level with the much larger group of taxpayers that they are the ones footing the bill.
James Carter serves as the director of the Center for American Prosperity at the America First Policy Institute. Jonathan Pidluzny, Ph.D., serves as director of the Higher Education Reform Initiative at America First Policy Institute.
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