The unforgiving pitfalls of student loan debt forgiveness

It’s official: The Biden administration has gone full Oprah, this time regarding student loans.

It’s just like those times the Queen of All Media would give away cars to a raucous in-studio audience, but instead the president is saying in this election year: “You get a free loan! And you get a free loan!”

This is obviously an effort to energize the Democratic Party’s liberal base ahead of the midterms 180 days from now. Because throwing money at people for votes is a time-honored tradition in the swamp that is Washington. And the president and his team can count on its allies – and there are many – to push a narrative that this is a great thing.

The irony here is that a big chunk – up to 50 percent – were for advanced degrees such as for law school and medical school. And those who go into those professions can earn the kind of money to pay student loans back comfortably over time. In a related story, less than 10 percent of student loans are held by the bottom third of earners.

One has to wonder where the forgiveness ends as well. Because these young adults entered into a loan agreement. They knew the overall cost of doing such a thing. They weren’t forced to do so. Should we forgive mortgage loans next? Credit card debt? And if we are going to pretend all of those signatures on the dotted line don’t exist, why not forgive medical expenses for cancer patients who can’t afford to pay their bills?

As for what this will do for the economy, most economists will tell you that this forgiveness to the tune of $1.6 trillion will be utterly unforgiving to inflation, which is sitting above 8 percent, a 42-year high. When Joe Biden took office, inflation was below 2 percent. And while those currently with loans would see relief, millions of others who played by the rules for decades and paid their loans back will not see any retroactive payment. And future students who take out loans will see the cost of doing so jump even higher.

“Incoming and future students would in fact be the biggest losers of large-scale debt cancellation because of its impact on inflation,” writes Forbes contributor Ben Ritz of the Progressive Policy Institute’s Center for Funding America’s Future. “Money that would be spent on payments that have been either suspended or cancelled are instead being used to bid up the price of goods and services already facing sharp inflationary pressures. As a result, the Federal Reserve will have to raise interest rates even higher than they otherwise would have to stabilize prices.”

“In other words, broad debt cancellation benefits high-income people who borrowed for their degrees in past years at the expense of higher costs to younger borrowers who already have to pay more than their predecessors because of skyrocketing tuition,” he correctly adds. 

The cost of going to college is off the charts, no doubt. Thinking of sending your kid to Duke or Georgetown? Be prepared to earn an additional $500,000 before taxes to do so, because the costs of those schools (tuition, books, room and board, etc.) is quickly approaching $80,000 per year. Even your average state school is north of $50,000 all-in for out-of-state residents. We’re talking $200,000 to $320,000 for one child’s college education, something most people cannot afford. 

The Biden administration knows it’s facing a wipeout in the November midterms. The precedent tells the story: Obama-Biden lost 63 seats in their first midterm in 2010 with Obama’s approval rating higher than Biden’s is now. The 2010 shellacking also occurred when inflation was much lower, as were gas prices and crime. The border also wasn’t essentially wide open, as it is now.

These issues, along with the growing perception that this president is too old and too incompetent to do the job, aren’t going to resolve themselves. And this gambit, and that’s all it is, only makes the biggest issue facing this administration – inflation – profoundly worse while not fixing the problem. 

“Our previous estimates suggest that the student loan portfolio would return to its current size within four years of a cancellation event. That means that in 2026, halfway through the next Presidential term, the student debt balance would be just as high as before any cancellation took place,” writes the Committee for a Responsible Federal Budget. 

Kicking the can down the road is a generous conclusion. 

And to those who argue that this plan is a political stroke of genius in an election year, it should be noted that just 13 percent of Americans have student loan debt, while 62 percent of adults in the country didn’t attend college. 

Just par for the course for the Oprah administration, where throwing lots of money at big problems somehow counts as comprehensive solutions. 

Joe Concha is a media and politics columnist.

Tags 2022 midterms government spending Inflation Joe Biden student loan debt Student loan forgiveness The Biden Administration

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