Don’t Be Taken In By the Student Loan “Forgiveness” Con
Multiple new outlets reported that the President Biden is getting closer to announcing a major student loan relief package soon.
It is all still speculation at this point but the numbers that are circulating are in the $10,000 per borrower level capped by some level of income (probably something like $150K per borrower or $300k if filling jointly).
This isn't that big of a shock. Student loan relief was, after all, a core campaign pledge of the President's and the pandemic-related pause on student loan payments is expiring (again) in August.
Even by the present day standards of election year politics, it would be difficult to justify extending a thrice-extended emergency measure when the emergency in question no longer exists.
However, a few points:
It doesn't get a lot of airplay but the current policy of pausing student loans isn't costless or a good idea. In fact, it has cost well over $100 billion according to the government's own estimates at a run rate of roughly $4-5 billion per month.
And it just delays rather than solves the inevitable problems of a system that piles too much debt on not enough income for too many borrowers.
The cost element of the pause is further concerning because the government has a history of fudging its own data on this subject - according to the government's own GAO. We might find out that the bill is quite a bit higher than this at some point in the future.
The real issue though, is that a lot of the current focus on the student loan problem and the potential for relief gets stuck in debates around legality and fairness and also the expense involved.
It is true that the numbers in question for outright forgiveness are also very large - around $320 billion of the total loan pile of $1.7 trillion.
More significantly still might be the fact that they are very legally questionable. Can the government unilaterally decide to spend hundreds of billions of dollars on a new, unfunded and unequal entitlement program?
This is understandable from one perspective - after all it is not decided yet - but it also somewhat misses the boat.
Aside from the will-he/won't he Biden question and whether it is actually legal there are two far more significant problems with student loan write offs, as they are currently structured:
It is incredibly elitist.
It directly incentivizes rather than curtails, cost inflation in higher education.
In other words, the real problem with student loan forgiveness, even if means tested or capped at a certain level of income, is that it greatly encourages more student debt and does so in an incredibly unequal and uneven manner.
It is really both of these points and especially how they interact that undermines both the positive elements of forgiveness writ large and challenges the overall utility of doing so.
Well, we have gone from a world where people considered themselves fortunate to go to college to instead one where some Americans not only believe they are entitled to a degree but to have it paid for as well - and paid for by others.
This speaks to a far bigger and more important problem for present day America - for either political party:
Student loans originated as one of the many policies in the Great Society and were originally designed to help low income students afford college.
Now who could have a problem with that?!
But over time two things have happened:
Colleges and universities have raised their prices in lockstep with the slowly but steadily rising amounts of federal largesse.
More and more of the overall debt pie have been captured by fewer and fewer individuals who are themselves neither poor nor the original intended recipients of such loans.
You won't find it much discussed in the Democratic talking points pushing for student loan relief or the mainstream media but the fact is that:
Only 15% of Americans have student loans.
Of that 15% of the population, some 40% of the loans are held by doctors, lawyers and other holders of advanced professional degrees.
That 40% is held by roughly 8% of borrowers.
So, it is not true that this is a problem affecting most Americans, or even a large plurality. It also isn't truly a "working class problem" as many Democratic Senators have been unsurprisingly but falsely claiming.
It is largely a rich person problem. Yes, there are unfortunate cases but more than half of borrowers owe less than $20,000 in debt.
Therefore, by continually "forgiving" more and more student loans or changing the existing terms, the government is rewarding the fortunate with a new and unexpected new entitlement program that they are unlikely to surrender. Those fortunate few are also the core of the modern Democratic Party, coincidentally.
The most significant problem with this Biden administration plan, however, is that nowhere in any of its plans is there a measure to deal with the fact that colleges and universities remain incentivized to raise costs far above inflation in order to capture the maximum amount of government largesse.
To the contrary, the plan now seems to expand and cement this untenable system in a new and horribly permanent fashion.
Rather than deal with the restricted supply of post-secondary education or the affordability issue we are instead simply subsidizing demand further. This approach is becoming a US specialty. Loyal readers might remember something similar occurring with the baby formula issue we covered last week.
Less supply but more subsidized demand which inherently creates higher costs. That is becoming the modern American way. Once you realize it, you see it everywhere.
This isn't just wrong (though it is), it is also counter productive. A product (the student loan) that we originally invented to help level the playing field is now being co-opted by a very small and very privileged slice of the country (and the electorate) .
And being paid for without going through Congress......
This is deeply a regressive policy outcome - student loan forgiveness means punishing the many (poor and non College educated) for the benefit of the few (rich and highly educated) - and also a terrible deal for taxpayers, present and in the future.
And we are encouraging the institutions granting those degrees to constantly raise their costs above the rate of inflation.
So, put it all together and you get: higher real costs backed by federal money+only certain Americans able to benefit = a runaway entitlement program for the few, paid for by the many.
Another aspect of all this is that, by taking these steps, the Democratic Party is further abandoning its working class roots - and with Ol' Working Class Joe at the helm no less - and becoming the party of the educated and wealthy elite.
Next time you think the Republican Party is the only political party captured by wealthy interests and skilled in corrupt giveaways turn your mind to higher education. It is difficult to find a more significant and uneven giveaway to the affluent and one being clothed as "relief for the working class."
The obvious undercurrent is that the Biden administration hopes for some political relief in the midterm elections and also to rekindle support among especially young Americans.
We suspect they won't be fooled however. Americans young and old may be let down by the absurd cost inflation of post secondary education but that still doesn't make them stupid.
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