Biden’s student loan relief is unforgivable

Rumors that the Biden administration plans to “forgive” some student loan debt for potentially millions of upper-class people earning up to $125,000 a year do not sit well with many Americans.

This will drive up inflation and create an unfair working class subsidy to the most educated people, many of whom are on track to earn the most money in their lifetime.

The untold story that Biden ignores is that the US government helped fuel this balloon of student loan debt to begin with.

University tuition fees have far outpaced inflation in the past two decades alone, and universities have continued to raise tuition fees because they knew government-backed student loans would keep pace.

By continuing to support loans without any responsibility for school prices or the usefulness of degrees, the federal government has allowed universities to recklessly disburse more loans to unhappy students.

A 2017 study from the Federal Reserve Bank of New York confirmed that one dollar of government student loan expansion was correlated with an increase in tuition fees of about 60 cents on the dollar.

This means that Student Union centers become elaborate lounges, fancy climbing walls abound, and school administrative bureaucracies sprawl.

Yet despite all these conveniences, employers say their new college-graded recruits are ill-prepared for the job market.

Canceling student debt will not prevent universities from charging more tuition.
REUTERS/Evelyn Hockstein

And very often, there is no demand for the degrees that students pursue like this degree in “feminist theory” or “philosophy of dance”.

A new study by education researcher Preston Cooper of the Equal Opportunities Research Foundation has examined the earning potential, or “return on investment” (ROI), of more than 60,000 post-secondary degrees and certifications.

Cooper estimates that “28% of bachelor’s degrees have a negative return on investment, meaning the degree does not increase student income enough to justify the costs of college and the risk of dropping out.

Moral hazard

Historically, a powerful check against this wasteful government and educational plethora was the fact that in America you had to responsibly pay for your own higher education.

Arizona State University downtown Phoenix campus buildings as seen in Phoenix, Arizona
With the help of government-subsidized loans, universities prioritized building brilliant student centers over student education.
Alexandra Buxbaum/Sipa USA

In economics, this principle is called the prevention of “moral hazard”, for example, when a person has no incentive to protect themselves from a risk because it has no consequence.

And now, instead of taking the punch bowl away from rich kids, Biden wants to make poor kids pay for booze.

Who will benefit most from Biden’s magic wand?

According to the Brookings Institute, the top 40% of households have “nearly 60% of outstanding student debt and make nearly three-quarters of the payments.

Inflation Accelerator

By magically “forgiving” potentially billions of dollars in loan debt, Biden ignores the fact that those loans won’t go away.

The cost of loans will be socialized to more people, for example, many poor and working class taxpayers, essentially more new government spending, just like another COVID package or iteration of the bill misnamed “Build Back Better”.

Record COVID-related government spending has already fueled painful inflation for households; “forgiving” student loans will speed it up. Biden’s plan is shameless political appeasement. With this unpopular Democratic president six months away from a competitive midterm election, Biden may believe that canceling college debt is good policy. But it’s horrible politics, and it could very well backfire at the polls.

Carrie Sheffield is Senior Policy Analyst at Independent Women’s Voice.

New York Post

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