The $1.78 trillion outstanding student debt monstrosity is about to have a modest haircut, courtesy of a new scheme manufactured by the Biden administration. Despite the federal government’s forgiveness efforts being popular with individuals crippled by substantial payments for worthless degrees, polling suggests it remains unpopular with a considerable portion of the electorate. Many either paid their own way or didn’t attend college at all. Regardless, President Joe Biden and the Democrats are moving heaven and earth to spend taxpayer money on securing a potential bloc of voters.
A New Student Loan Debt Plan
Following the Supreme Court’s decision to strike down the president’s proposal to forgive up to $20,000 in student loan debt, Biden promised that his administration would devise other tactics to provide relief to indebted Americans. The Department of Education announced on July 14 that the US government would automatically forgive $39 billion in student loan debt for 804,000 borrowers. In total, the Biden administration has approved nearly $117 billion in student loan forgiveness for approximately 3.4 million borrowers.
The White House’s latest tactic is a part of the broader income-driven repayment initiative that cancels remaining balances for debtors after they have made their payments for 20 or 25 years – or 240 or 300 monthly payments – depending on how much they borrowed. The changes will count monthly payments that qualify for this new program, as “inaccurate payment counts have resulted in borrowers losing hard-earned progress toward loan forgiveness.” In the coming days, borrowers will be contacted if they are eligible for their student loan debt to be discharged.
Vice President Kamala Harris noted that student loan service firms put eligible borrowers into forbearance against the payment plan rules, so individuals were not given credit for monthly payments they completed. As a result, this will ostensibly be the new action plan for the remainder of 2023. The Education Department will continue to locate borrowers who touch these forgiveness thresholds “every two months until next year when all borrowers who are not yet eligible for forgiveness will have their payment counts updated.”
“For far too long, borrowers fell through the cracks of a broken system that failed to keep accurate track of their progress towards forgiveness,” said Education Secretary Miguel Cardona in a statement. “By fixing past administrative failures, we are ensuring everyone gets the forgiveness they deserve, just as we have done for public servants, students who were cheated by their colleges, and borrowers with permanent disabilities, including veterans. This Administration will not stop fighting to level the playing field in higher education.”
Both US officials and advocacy groups assert that correcting these 804,000 errors is “only the tip of the iceberg.” “Working people with student loan debt have been made collateral damage by a dysfunctional student loan system. Just like we saw with Public Service Loan Forgiveness, our student loan system is riddled with structural incompetence, and vulnerable, low-income, and Black and brown borrowers face the harshest effects. Now, our leaders need to finish the job,” said Persis Yu, the deputy executive director and managing counsel at the Student Borrower Protection Center, in a statement.
The Taxpayer Tab
Indeed, this is only the beginning, especially when a particular party is trying to do everything in its power to guarantee a voting bloc for decades to come. Of course, there is a demand, considering that half of the borrowers reported in a new poll that they do not earn enough to make student loan payments. In addition, in another case of horrible financial management, a new survey discovered that one-third of student loan borrowers spent the money they believed would be forgiven. Evidently, at a time when the government keeps bailing out companies and individuals that make bad decisions, Washington will inevitably intervene.
But does the nation’s capital possess enough supply of dollars to satisfy this demand? First, it is essential to determine how much the president’s student loan debt forgiveness blitzkrieg will cost. Estimates vary, but the worst-case scenario from the Penn Wharton Budget Model is that the entire discharge project could cost up to $1 trillion. Best-case scenarios? The Congressional Budget Office forecasts roughly $230 billion, while the Foundation for Government Accountability expects the final price tag to be $471 billion.
Thanks to its $33 trillion national debt, $1 trillion deficit, and $200 trillion in unfunded liabilities and expenditures, the US government does not have this money lying around. Therefore, Uncle Sam will fund this forgiveness the old-fashioned way: more taxes, borrowing, and printing.
The term moral hazard has been thrown around a lot this year, be it to describe the banker bailouts in the aftermath of the Silicon Valley Bank collapse or graduates who signed documents to repay their loans. It is a basic economics concept that warns about the paucity of incentives to shield against risk when the person or thing is protected from consequences. Critics can talk about the dollars and cents of student loan forgiveness until they are blue in the face. But the perpetual risks attached to these schemes are also worth noting since they would exacerbate the problems ubiquitous in the post-secondary system, from students enrolling in programs that provide little value in the real world to universities raising tuition costs because they know the government will intervene.
Last year, President Biden demanded that mom-and-pop gasoline stations lower gas prices, arguing that they need to do their part. To this date, he has yet to pressure his progressive allies in higher-education institutions to lower their tuition.
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