The Biden administration has been suggesting for several months that it will soon announce plans to cancel a significant amount of student loan debt for the well-over 40 million Americans with federal college loans.
Beset with multiple crises and abysmal poll numbers, the administration likely will delay the announcement until closer to the fall elections, hoping it will boost turnout among students and recent college grads and help the Democrats avert political Armageddon. Whether this expectation is realistic, given the current level of inflation— which may soon drive many Generation Z members back into their parents’ basements—is debatable, so I’ll leave such speculation to others.
More important are several other considerations, such as the following: Loan forgiveness is likely illegal, immoral and inequitable, would weaken already-shaky government finances, and makes little sense.
Before elaborating further, it’s important to note that the Biden administration since March 2020 has put a moratorium on interest charges on about $1.6 trillion in student-loan debt and essentially has told borrowers that there are no financial consequences of not making regular repayments—even as employers struggle to fill more than 11 million available jobs. Not only that, as a result of inflation, the cost of repaying existing loans has gone down; a dollar borrowed a year ago can be repaid with a dollar today that in real terms is worth less than 92 cents. Moreover, large numbers of other borrowers, such as those with loans from the defunct Corinthian Colleges, have been told that their debt has been fully canceled.
So, it’s not as if tens of millions of college students and recent grads are having to choose between paying their student loans and eating. That’s not the case at all.
My other concerns, however, are real.
It may be illegal.
I’m not a lawyer, but it seems incomprehensible that debt cancellation would be considered lawful if challenged in court. The current federal Direct Loan program was created by an act of Congress (Public Law 111-152) and signed into law by President Obama. There is no provision in the legislation that explicitly gives the President wide latitude to change the program by, for example, eliminating loan repayment. To assume such unilateral authority, the president would be acting in the manner of King Louis XIV ("the State is I") rather than the head of a government guided by rule of law.
It's immoral and unfair.
Is it morally right to tell some borrowers, "You must repay your loan at an X percent interest rate," while telling other borrowers "You’re off the hook"? Doing so seems especially wrong when many of those who repay their loans will live frugally in order to do so, while many of those who are told to ignore their obligations (think lawyers, MBAs and other well-paid professionals) already are living comfortably. Is this the new definition of fair? Does modern American society reward those who ignore their legal obligations?
It's financially irresponsible.
My crude estimate is that the moratorium on student loan interest payments alone in the 28 months since it began has lowered federal revenue by more than $200 billion. This, at a time when the federal debt exceeds $30.5 trillion. Even a modest student loan forgiveness program likely would involve $400 billion to $500 billion in additional lost government revenue. Someone, someday, must pay these debts unless some future administration decides to default on the government’s obligations or, perhaps more likely, reduce their magnitude through deliberate inflation, as I alluded to earlier.
It makes little sense.
Does it make sense to burden hundreds of millions of Americans who live paycheck to paycheck, many of whom didn’t have the opportunity to go to college (or chose not to), to bail out student borrowers, many of whom are doing quite well financially, some with six-figure incomes? Is it sensible to subsidize higher education, which has been running up its costs for decades while failing to graduate a majority of bachelor degree candidates within six years? I don’t know about you, but it doesn’t to me.
This is not about helping students. Then why would the administration do this?
One highly plausible answer: Higher education is a fervent ally of progressive elements within the Democratic Party, providing sizable financial support, ideas, and personnel. So, it’s a way for the administration to buy votes while paying off its loyal supporters in the academic and activist communities.
Richard Vedder is a Senior Fellow at the Independent Institute, Oakland Calif., a Distinguished Professor of Economics Emeritus at Ohio University, and author, most recently, of Restoring the Promise: Higher Education in America.