Debts should be repaid by the people who borrowed the money, not taxpayers. But this is an election year, so different rules apply.
Let’s go through today’s announcement from the White House on student-debt “relief.”
No Applications
One of the peculiar things about the White House’s announcement of more student-loan programs today is how it emphasizes that the “forgiveness” — which is really transferring the debt from borrowers to taxpayers — will in many cases come without any need for recipients to apply for it.
The White House makes the situation sound extremely dire: “More than 25 million borrowers owe more than they originally borrowed, including many who have made years of payments, due to the interest rates on Federal student loans.” These poor souls toiling under the weight of this ever-increasing debt must be crying out for any relief. If the only thing standing in their way was some paperwork, they’d do it forthwith. Yet, the statement says, “No application will be needed for borrowers to receive this relief if the plan is implemented as proposed.”
The statement treats this problem in greater depth. It says, “Too many borrowers eligible for relief — including immediate cancellation — have not been able to overcome paperwork requirements, bad advice, or other obstacles.” To fix this, the administration wants to make debt cancellation automatic. “The Administration’s plans would allow the Department of Education to use data it has on hand to identify borrowers otherwise eligible for this type of relief without requiring them to apply for these programs,” the statement says.
The White House apparently believes millions of people are crushed by student debt, but they can’t figure out how to apply for relief. It believes this to be true of people who are currently eligible under existing programs and of people who will become eligible under expanded programs.
Radical proposal: If you can’t figure out how to do some paperwork to have taxpayers pay your debts, you shouldn’t be allowed to have taxpayers pay your debts.
Of course, this entire policy approach is nonsensical to begin with, and debts should be repaid by the people who borrowed the money, not taxpayers. But granted that this is the approach the administration is taking, having people apply for benefits isn’t too much to ask. And from a federal government that made at least $236 billion of improper payments last year, Americans should be even more skeptical that this money will end up in the right hands when disbursed on autopilot.
Twenty-Year Cutoff
“The Administration’s new proposals, if finalized as proposed, would cancel student debt for borrowers who first entered repayment 20 or more years ago,” the statement says. Nowhere does it say why 20 years is the cutoff. It’s a peculiar number to choose. Most mortgages in the United States are for 30 years. Home borrowers would be just as happy to not have to pay their debts back as student borrowers would.
Having debt for many years is not a legitimate reason to stop paying it back. Part of the reason mortgages are for 30 years is so monthly payments can be low. That is a tradeoff many people are willing to make. Student borrowers can evaluate that tradeoff in the same way home borrowers do.
Additionally, the statement says that for this provision, “Borrowers would not need to be on an income-driven repayment plan to qualify.” So someone making lots of money now who is still paying off student debt from 20 or more years ago would still be able to shift that burden to taxpayers.
Borrowing for Bad Programs
“One of the Biden-Harris Administration’s top priorities when it comes to higher education is holding colleges accountable when they leave students with mountains of debt and without good job prospects,” the statement says. “To this end, the Department has taken significant steps to crack down on colleges that provide low-value programs to borrowers, when they cheat students and families, and when they close unexpectedly — leaving borrowers and taxpayers to foot the bill.”
So, now, it’s going to have taxpayers foot the bill. The plan “would cancel student debt for loans associated with institutions or programs that lost their eligibility to participate in the Federal student aid program or were denied recertification because they cheated or took advantage of students,” the statement says. “Further, borrowers who attended institutions or programs that closed and failed to provide sufficient value— for example that leave graduates with unaffordable loan payments or earnings no better than what someone with a high school diploma earns— would be eligible for relief under this proposal.”
Of course, this state of affairs is largely the federal government’s fault. If there were a true market for student lending, lenders would price for risk. They would have incentives to research how effective college programs are at producing quality graduates. They’d be willing to lend to students enrolling in good programs at lower interest rates and would lend to students enrolling in bad programs only at higher interest rates. That would help students by providing them with additional information about the relative advantages of different program choices. It would also encourage schools to either improve or shutter bad programs, since enrollment would drop in the face of higher interest rates.
But it is the purpose of federal student-lending policy to make loans available to anyone going to any school for any program. Rather than sorting out which programs are good ahead of time and discouraging people from taking on unwise debt in the first place, borrowers find out after the fact that their degrees aren’t useful. And now, rather than having the failed programs pay back the debt, taxpayers are on the hook.
Hardship
“President Biden and his Administration recognize that the current student loan system and repayment programs don’t reach all borrowers, and for many Americans student loans continue to be a barrier for them participating in the economy, accessing economic mobility, or pursuing their dreams,” the statement says. “The Administration’s plan for student debt relief will also include a plan that would cancel student debt for borrowers experiencing hardship in their daily lives that prevents them from fully paying back their loans now or in the future.”
Paying back debt is unpleasant. This is true of all forms of debt. Nobody really enjoys it. Anyone could think of other things they’d rather spend money on than interest. That is not an excuse to not pay the debt.
If it were, there are many more deserving recipients of debt relief than American college graduates. Student-loan “forgiveness” is highly regressive, with medical-school graduates benefiting far more than bachelor’s degree holders. The median American adult has no student debt, because the median American adult never borrowed any money to attend college in the first place. Shifting the burden of student debt to taxpayers is redistributing from the relatively poor to the relatively rich.
The Cost
The administration says its plans announced today, when combined with other measures it has already enacted, “would provide debt relief to over 30 million Americans.” It outlines almost $150 billion of “relief” it has already enacted, but it provides no cost estimates for the additional “relief” it has proposed.
It’s an election year, though, so the statement does announce travel plans for Biden, Vice President Harris, Second Gentleman Emhoff, and Secretary of Education Cardona to promote the proposals in campaign events. That’s what these proposals are ultimately about.