President Biden threw fiscal sanity, the advice of Nancy Pelosi, and millions of American taxpayers under the "Build Back Better" bus this week when he announced executive action on student loan debt. In addition to a seventh extension of a "pause" in federal student loan repayment through the end of 2022, Biden announced the "cancelation" of $10,000 to $20,000 of individual borrower balances at a cost of more than $300 billion dollars to the American people.
Both, of course, come at a significant expense to all Americans — whether they went to college or not and regardless of whether they already paid back their own loans. By the numbers, more than 60 percent of Americans don't have a college degree, yet they will still pay the price for those who did. Broken out by adult taxpayers, 87 percent of adults without student loans will now pay for the 13 percent who do. More than half of outstanding student loan debt — 56 percent — is owed by the less than 15 percent of Americans who have graduate degrees.
While the exercise in socialist policy via executive fiat might feel good to tax-and-spend Democrats who are always eager to spend other peoples' money, the move comes at a cost to the larger economy as well as individual taxpayers. Biden's plan punishes responsible borrowers, misses the larger government-created issues that broke higher education, and will make inflation even worse.
According to The New York Times, Goldman Sachs has estimated that pausing loan repayment "probably adds about $5 billion per month to the economy" — and Biden just extended that (again) from August 31 to December 31. $5 billion per month for four additional months means inflationary pressure won't be eased as an additional $20 billion hits the economy that wouldn't have been added if payments had restarted in September.
What's more, analysis by the Committee for a Responsible Budget also found that $10,000 of "forgiveness" for student loan debtors "could add up to 15 basis points [to the Personal Consumption Expenditure (PCE) inflation rate] up front and create additional inflationary pressure over time."
Even Democrat officials, such as former Treasury Secretary and Obama economic adviser Larry Summers, said that shifting student loan debt away from borrowers would raise demand and increase inflation. But Biden didn't care and is doing something of a last-ditch effort to motivate Democrats to vote while ingratiating himself with voters carrying large student debt balances by supposedly wiping away debts.
On Biden's other shoulder were progressive activist groups and lawmakers even further to Biden's left who insisted student loans needed sweeping action to motivate young voters to get out and cast ballots for Democrats in the midterms. Now we know who won out in Biden's decision-making process. If there wasn't enough data showing that Biden's decision to act on student loan debt in this way was a terrible idea, knowing it was informed by demands from lib Twitter and progressive Squad members confirms that this will prove to be an economy-wrecking boondoggle.
Biden apparently chose to heed radical progressives and didn't care to listen to the voices of another former Obama economic adviser — Katherine Abraham — who, in an op-ed with AEI senior fellow Michael Strain, explained why student loan forgiveness "would be a huge mistake," "extremely regressive," and "would set a terrible precedent."
There are multiple studies on the disproportionate benefit student loan forgiveness would hand to wealthy Americans with significant earning potential, including one from the University of Chicago that found full cancelation of debt would see the top 20 percent of earners receive $192 billion in relief while the bottom 20 percent of earners would see only $29 billion in relief. That's not the "equity" that Democrats proclaim guides their policymaking. Another analysis from Brookings reinforced the inequality — something Democrats say they vehemently oppose — that loan forgiveness would promote by rewarding borrowers that are "higher income, better educated, and more likely to be white" at a higher rate than other groups.
Biden also ignored House Speaker Nancy Pelosi's declaration in April that the president of the United States lacks the authority to "cancel" loans and can only "postpone" payments. Pelosi, the loyal flip-flopping Democrat footsoldier that she is, still heralded Biden's "bold action" this week despite saying less than six months ago it was an action he couldn't take.
In the less than two years under Biden's "Build Back Better" economic agenda, Americans have entered a recession, faced record-high gas prices, dealt with 40-year-high inflation, struggled with shortages of critical goods like baby formula, and now Biden has taken action using dubious authority that will make things worse, not better, with fewer than 11 weeks until the midterms.