[This piece has been published in Restoring America to highlight how President Joe Biden’s planned student loan debt forgiveness would unfairly benefit high-earners while punishing those who already paid back their debt].
The press is indicating that President Joe Biden will make an announcement tomorrow on his long-awaited decision to cancel student loan debt for millions of Americans. Rumors suggest that the president will be canceling $10,000 of student debt per borrower, excluding borrowers with annual income over $125,000. At the same time, it is expected that he will extend the pause on student loan repayment that has been in place since the onset of the COVID-19 pandemic.
A new study from the Penn Wharton Budget Model, based out of the University of Pennsylvania, indicates that this plan would cost taxpayers over $300 billion, and two-thirds of the dollars forgiven would benefit households in the top 60% of the income distribution.
The study is newsworthy because its analysis is robust and it estimates the cost of the rumored intervention and its distribution of benefits. However, it doesn’t tell us anything that we didn’t already know. Student loan cancellation would be expensive and favor high earners.
Student loan cancellation is being sold as an intervention to bail out struggling borrowers who were made victims by our unscrupulous system of federal student lending. But it’s hard, nay impossible, to reconcile that narrative with the actual implications of the policy. If Biden were in it to help struggling borrowers, he’d be working with Congress to enact systemic reform that would make things better for future students: shoring up existing safety nets, streamlining repayment to minimize the hassle for borrowers, and avoiding driving up future borrowing and prices. Instead, he’s taking a step that’s blatantly political. By canceling student debt through a one-time event rather than through thoughtful reform of the existing safety net, Biden will be driving students to borrow more and institutions to raise prices even faster than before.
It’s clear that the motivations for this step are political, but it’s not clear what the political benefits will be. While Republicans oppose loan cancelation on grounds of fairness and concerns about future implications for the cost of college, progressives oppose this sort of intervention because it doesn’t go far enough. (They want universal loan cancelation without income limits.)
I know that the president is looking to chalk up a win before midterms, but it’s not clear that this will get him there. Only time will tell if this controversial move will pay dividends for Democrats in midterms and beyond.
This article originally appeared in the AEIdeas blog and is reprinted with kind permission from the American Enterprise Institute.
