This morning, President Biden announced new details about the latest effort to cancel student debt that he says will reduce balances or completely cancel student debt for over 30 million Americans.
First, he plans to cancel up to $20,000 of accumulated unpaid interest, regardless of the borrowers’ income. Second, the administration plans to automatically cancel debt for borrowers eligible for SAVE, Public Student Loan Forgiveness (PSLF), closed school discharge, and/or other federal forgiveness programs without them needing to apply. And lastly, Biden intends to forgive student debt for other categories of borrowers, ranging from those “experiencing hardship” to those who entered repayment over 20 years ago. Details on these plans were thin.
And these efforts are all in addition to his expansive SAVE Plan—that transforms income-driven repayment into an entitlement program—and his efforts to use the negotiated rulemaking process to forgive even more student debt.
Here’s the thing: Biden knows better. Less than a month into his presidency, he declared “I will not make that happen” in response to a voter asking whether or not he’d back progressives’ proposal to broadly forgive student debt. “I don’t think I have the authority,” he wisely said. And beyond the question of authority, he seemed to acknowledge the ill-conceived nature of broad-based student loan cancellation when he offered that he didn’t want taxpayers to pick up the tab for graduates of “Harvard and Yale and Penn.”
But now, his administration has explicitly “vowed to use every tool available to cancel student debt for as many borrowers as possible, as quickly as possible.”
As the President himself suggested just a few years ago, such broad forgiveness is simply bad policy. Not only is it regressive, it also provides colleges and universities with precisely the wrong incentives. When students don’t have to pay back the money they borrow to pay for college, colleges don’t have any reason to keep prices low. On the contrary, some students will necessarily benefit from paying and borrowing as much as possible.
So, why the change of pace? It seems that this administration is more interested in scoring political points than enacting good policy. The math is simple: 30 million Americans with lower or completely forgiven student loan balances will have Biden to thank, and they may repay the favor in November by giving him their vote. As is the case with many transfer programs, costs are distributed, while benefits are concentrated.
Time will tell what the fate of Biden’s constant efforts at forgiveness will be. The courts have held back Biden from blatant executive overreach, and they may well do so again as a lawsuit against the SAVE Plan gains steam. But one thing is abundantly clear: Biden has transformed the federal direct loan program, enacted with the intention of solving a narrow problem, into a giant drain on the US Treasury. His repeated efforts to undermine the program are leading many moderate voices, like myself, to a sad conclusion; that maybe it’s time to scrap the whole system and start from scratch.
Originally published by the American Enterprise Institute. Republished with permission.
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