When I learned of President Joe Biden’s latest student loan forgiveness plan, seven words, all beginning with the letter "I," came to mind: I thought the idea was illegal, inflationary, immoral, inequitable, irresponsible, irrational and idiotic.
- Illegal: The current law governing federal student loans dates back to the Obama era, P.L.111-152. In it, the Congress and president agreed on funding for the student loan program. Nothing in that law allows for the president on his own authority to dramatically change its terms. In fact, several years ago a U.S. Department of Education legal counsel memo found that it would be unconstitutional for a president to unilaterally change the terms of the law.
- Inflationary: We are in times of high inflation. Forgiving student loans increases incentives for colleges to raise tuition and fees more aggressively. Students will be emboldened to borrow more, thinking "I will not ever have to pay the loans back." Empirical evidence by the New York Federal Reserve and others supports the Bennett Hypothesis (named after former Education secretary Bill Bennett): that most new federal student loan money ends up being absorbed by higher tuition fees; universities and their staffs benefit much more than students. Even staunch liberal Democratic economists like former Treasury secretary Larry Summers and Council of Economic Advisers head Jason Furman have opposed loan forgiveness because of the impact on prices.
- Immoral: It is wrong to tell some borrowers that they need not meet their loan obligations — letting some favored persons ignore legal commitments, but not others.
- Inequitable: Is it fair to ask lower-income taxpayers to pay the college loan obligations of students from middle- and upper-income families, and graduates earning as much as $125,000 a year ($250,000 for a couple)? Is it fair to the millions of student loan borrowers who financially sacrificed in order to dutifully pay off obligations, while other Americans ignored their obligations, lived a bit better and are now being rewarded by the government?
- Irresponsible: One estimate (from Penn Wharton) is that this will cost the government some $300 billion in foregone revenues, and that ignores the additional $10,000 in loan forgiveness Biden is offering Pell Grant recipients (a majority of borrowers). Moreover, the announced extension of the moratorium on interest payments on loans also will cost the Treasury billions each month – conservatively $200 billion since it began in March 2020. Our national debt now exceeds a year’s GDP – something that historically has happened only after huge wars like World War II. Moreover, we are doing nothing to reduce tens of trillions of dollars in unfunded Social Security and Medicare liabilities. Someone has to pay these obligations. We are losing our credibility as the world’s soundest major economy.
- Irrational: It makes little sense to help a subset of the population that on average is fairly well off, especially for Democrats professing to be the party supporting lower-income Americans who mostly did not go to college. Why is even partially appeasing the far-left wing of his party — AOC and the "Squad" in the House and allies like Bernie Sanders and Elizabeth Warren in the Senate — considered smart politics, much less responsible public policy?
- Idiotic: The assumption that this move will win more Democratic votes in November than it will lose sounds far-fetched to me. The Democrats, despite some modest gains recently, have lost huge ground politically over the past 19 months if polling data are any indication. How will doubling down on progressive policies that have not heretofore proven popular advance the Democratic agenda leading up to the 2024 presidential election?
If this is so irrational and stupid, why is the Biden administration doing it? In reality, universities have become wards of the state and reliable and dependable political allies of big government. That may explain the administration’s actions: They think they owe it to their friends who contribute to their campaigns, provide them with ideas, and help staff their leadership. It will enable schools to raise fees even more and solidify the administration’s relationship with an important ally.
Unfortunately, that does not make it good public policy.
Richard K. Vedder is a senior fellow at the Independent Institute, Oakland Calif., distinguished professor of economics emeritus at Ohio University, and author, most recently, of "Restoring the Promise: Higher Education in America."