Back in November, we explained that canceling student debt would be a bad policy choice, and that doing so by executive order would be an abuse of the discretion Congress has given to the president.
The good news is that President Biden has scaled back the Left’s ambitions on both fronts. Where some have called for $50,000 in debt cancellation, Biden seems more comfortable with $10,000, perhaps allowing higher amounts in special circumstances. Biden has also been skeptical of his ability to make this change unilaterally and is asking the Department of Justice to review the law.
The bad news is that even $10,000 of blanket forgiveness is a bad idea, for the same reasons we laid out previously.
Student debt is not a “crisis”; most students graduate with manageable levels of debt, and those with extremely high debt burdens tend to be the folks who got postgraduate degrees or chose to attend expensive private schools. Moreover, if someone has a high debt burden and a low income, he can already, under current law, choose an “income-based” repayment option that forgives the debt after he makes affordable payments for a period. There are certainly sympathetic cases where students were suckered in by colleges’ fraudulent claims, or where students attended school but didn’t graduate, gaining some debt with no degree — but blanket forgiveness, even limited to $10,000, does not target such cases, much less prevent them from continuing.
Instead, forgiveness helps the college-educated higher classes at the great expense of taxpayers in general. As Adam Looney of the Brookings Institute recently explained, “even $10,000 in debt forgiveness would involve a transfer that is about as large as the country has spent on welfare (TANF) since 2000 and exceeds the amount spent since then on feeding hungry school children in high-poverty schools through the school breakfast and lunch program.” The median income of households with student loans is $76,400, and only 7 percent are below the poverty line, he added.
Further, forgiving debt is an insult to those who paid off their loans early. It’s a poor way to stimulate the economy in the short term, because so much of the forgiven debt would not have been repaid for years anyway. It sends a message that educated young adults shouldn’t be responsible for their own finances. And it tells colleges, which are failing to control their own costs, that taxpayers will always step in to pick up the tab.
The idea Biden is meandering toward — $10,000 in forgiveness passed by Congress — is not as bad as the $50,000 via executive order that other Democrats want. But it’s not good, either.