President Biden has announced that the federal government will forgive $10,000 in student loan debt for Americans making less than $125,000 annually as well as extend the student loan repayment moratorium. This plan is estimated to cost taxpayers $330 billion and should be seen as the most unfair, outrageous, and disgraceful decision in many years. The president is telling Americans that they do not have to bear any responsibility for their voluntary obligations in borrowing money or going into debt. His proposal is also regressive and inflationary, and possibly unconstitutional.
Forgiving student loans disproportionately benefits those with higher incomes. According to the Penn Wharton Budget Model, more than 70 percent of the debt forgiveness would be given to households who are in the top 60 percent of income distribution. The president’s proposal will force middle and low-income Americans who have paid off their student loans or never attended college in the first place pick up the tab for higher-income Americans who decided to take on substantial student loan debt and have not yet fully paid off their loans.
Republicans and conservatives are not the only ones concerned about this fiscally reckless proposal. Larry Summers, an economic adviser to former President Barack Obama and secretary of the Treasury under former President Clinton, said “the student debt relief is highly regressive as higher income families are more likely to borrow and to borrow more than lower income families. Adults with student loans have much higher lifetime incomes than those without.” Former Obama Council of Economic Advisors Chairman Jason Furman, said that forgiving student loan debt benefits recent college graduates at the expense of both the rich and poor. He tweeted that it would be reckless to add gasoline on the inflationary fire and the loan forgiveness would go beyond the president’s campaign promise of $10,000 in student loan relief while violating his promise his proposals would be paid for. In April 2022, House Speaker Nancy Pelosi (D-Calif.) said that President Biden does not have the power to forgive student loans.
The White House’s plan to forgive student loan debt is just another example of Democrats completely shunning fiscal responsibility. Almost immediately upon taking office, President Biden and Democrats in Congress authorized $1.9 trillion in the unnecessary and wasteful American Rescue Plan Act of 2021 (ARPA), which was followed by the $1.2 trillion Infrastructure Investment and Jobs Act (IIJA). Just two weeks before his student loan forgiveness plan was announced, Congress passed and President Biden signed into law the so-called Inflation Reduction Act of 2022, which authorized $433 billion in new government spending and raised taxes by $739 billion. It supposedly would reduce the deficit by $300 billion, but that would be completely offset by the cost of the student loan forgiveness plan.
The unfairness of student loan forgiveness was highlighted in a series of articles that demonstrated the personal sacrifice made by tens of millions of Americans who took the responsibility to pay off their loans. Michelle Schroeder-Gardner, who accumulated $40,000 in debt to obtain her master’s degree from the University of Missouri, paid off her loan in eight months by working beyond her 40-hour weekly job. Rutgers University graduate Pathik Oza had $70,000 in loans and started a used book business to earn enough income to pay it off within two years. And a Florida couple who had a combined $203,000 in student loan debt set up a budget system that allowed them to pay it all off in 27 months. Instead of congratulating and emulating these hard-working Americans who have demonstrated fiscal, personal, and moral responsibility, the White House is spitting in their faces along with everyone else who has paid off their loans or their children’s loans.
Citizens Against Government Waste has long been arguing against student loan forgiveness, including naming both Rep. Alexandria Ocasio-Cortez (D-N.Y.) and Education Secretary Miguel Cardona as Porkers of the Month for their support of this terrible idea. President Biden’s announcement is the latest, and likely not the last, example of how he and Democrats in Congress have completely given up on any sense of fiscal sanity. This regressive plan would force those who never attended college or have paid off their loans to bail out those higher-income Americans who have failed to pay off their completely voluntary debts.
President Biden’s decision is both pandering to progressives and pushing for votes in the congressional elections in November 2022 and presidential election in 2024. But the plan may backfire, as the motivation to oppose candidates who are forcing voters to pay for someone else’s loans could end up being far stronger than the White House may think.
Eric Maus is Federal Affairs Associate at CAGW.