If you feel like D.C. officials are giving Americans mixed signals, then you aren’t alone.
A couple weeks ago, President Joe Biden signed the Inflation Reduction Act into law. Among many things, it is ostensibly supposed to reduce the deficit by hundreds of billions of dollars and curtail inflation—although Penn Wharton University asserts that it will have little noticeable impact.
Taming inflation and deficit spending sounds wonderful, but whatever fiscal benefits the Inflation Reduction Act will allegedly provide will almost certainly be wiped out by Biden’s most recent foray into fiscal irresponsibility: student loan forgiveness. His plan arbitrarily picks winners and losers and will hamstring American taxpayers for decades to come.
“The Department of Education will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education, and up to $10,000 in debt cancellation to non-Pell Grant recipients. Borrowers are eligible for this relief if their individual income is less than $125,000 ($250,000 for married couples),” reads a White House fact sheet. What’s more, it will cut monthly payments on remaining debts, extend loan forbearance and much more.
Biden’s plan hasn’t been without criticism. “It fuels inflation, foots taxpayers with other people’s financial obligations, is unfair to those who paid their own way and creates irresponsible expectations,” tweeted Sen. Mitt Romney (R-Utah), and he appears right on all fronts.
“The Penn Wharton Budget Model estimates that canceling $10,000 for borrowers earning up to $125,000 will cost about $300 billion. The Pell grant addition could increase this by as much as $270 billion. The four-month freeze on payments will cost $20 billion,” wrote the Wall Street Journal. So, about a half trillion dollars or more will be forgiven.
However, during a press briefing, Biden spokesperson Karine Jean-Pierre dodged questions about who will pay for this. Spoiler alert, it’s you and me. The majority of student loans are owned by the federal government, which means that taxpayers are on the hook for debt forgiveness. Canceling the debts doesn’t make them disappear. Thus, they will be billed to taxpayers—many of whom already paid their student loans or never went to college in the first place.
When pressed over whether Biden thinks his approach is fair to those who have satisfied their student loans, he gave a nonsensical answer: “Is it fair to people who, in fact, do not own multi-billion-dollar businesses if they see one of these guys getting all the tax breaks? Is that fair? What do you think?” Then he stormed out of the room.
The massive costs aside, it doesn’t appear that the Biden plan is designed to help only the neediest, given that it will provide debt forgiveness to households making up to $250,000. That’s more than four times the median household income in Georgia. So, it’s a bit of a windfall for the affluent.
None of this is to say that there aren’t glaring problems with education in modern America. The costs have exploded over time—growing by leaps and bounds from 1980 to 2020. Today, there’s around 1.75 trillion dollars in outstanding student loan debt and borrowers on average owe around $30-45,000. What’s more, 60 percent of this debt is held by the rich and upper-middle class. Yet no part of Biden’s plan seems intended to fix the root problems with education. Rather, the status quo will undoubtedly continue and problems will persist.
The method by which Biden has enacted this measure is also incredibly troubling. He’s not relying on Congress; he approved the measure by executive fiat. He is “using a little-known provision in the post-9/11 Heroes Act, which allows the Education Department to waive or modify student loan payments in times of national emergency,” according to the Washington Post. What emergency is he invoking? COVID-19.
There’s some legal discussion over whether the president has the authority to erase loans. In fact, last summer, Speaker of the House Nancy Pelosi (D-Calif.) said, “The President can’t do it. So that’s not even a discussion. Not everybody realizes that. But the President can only postpone, delay, but not forgive.” She has since changed her tune.
It remains to be seen if there will be any legitimate legal challenges to the Biden debt forgiveness plan, but one thing is for certain. Biden’s measure demonstrates that he was not and is not particularly serious about reducing the deficit, since his latest action seems primed tack on hundreds of billions of dollars to our national debt.
Marc Hyden is the director of state government affairs at the R Street Institute. You can follow him on Twitter at @marc_hyden.