Another Student Debt Scheme

Another Student Debt Scheme
U.S. President Joe Biden speaks on the student debt relief plan in the South Court Auditorium at the Eisenhower Executive Office Building in Washington on Oct. 17, 2022. Alex Wong/Getty Images
Milton Ezrati
Updated:
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Commentary
After losing at the Supreme Court, President Joe Biden has floated another student debt relief scheme. Lawyers and judges will take a while to decide if this new approach passes constitutional muster, no doubt, until after the 2024 election. But while the legal gears turn—slowly as ever—the political-economic implications will emerge immediately and be the same as last time.
The last student debt relief plan would have given $10,000 in outstanding debt relief to individuals below a certain income level and an additional $10,000 to Pell Grant recipients. The program would have cost the Treasury some $400 billion in lost revenue flows.

The Supreme Court’s 6–3 decision denied that the White House had the authority to do this, as it claimed, under the Higher Education Relief Opportunities for Students Act. The new approach to debt relief is more piecemeal than the first.

The Education Department has already decided to give credit for debt repayments even during a time when payment obligations were waived and no payments were made. The department has also decided to extend and enhance the public-service loan forgiveness provision, exclude certain sorts of income from the maximum income calculation, and reduce to 5 percent of disposable income the allowed maximum payment.

The costs of this new plan would exceed those of the original effort. According to the Education Department, even when debtors made no payments, granting of credits denies the Treasury some $39 billion. Other changes, according to the nonpartisan Congressional Budget Office, would raise the proportion of debtors getting relief from 50 percent of all student debtors presently to 66 percent.

Over a longer time frame, the Penn Wharton Budget Model estimates that, ultimately, the changes would cover some 91 percent of the debtors and cost some $470 billion over the next decade, and still more after that.

Only a fool would try to foretell the legal wrangles about to take place, much less guess how the Supreme Court will ultimately find it. But it’s a straightforward exercise to identify the political-economic issues that this new effort will raise. They will be the same as with the last effort. The beneficiaries will support it, even as they claim it’s insufficiently generous, while resistance will emerge in Congress and elsewhere.

The position of the beneficiaries is straightforward in the extreme. On the other side, matters are more nuanced. Questions of equity will dominate, while a need to address the underlying problem will gain some purchase as well.

The most immediate aspect of the equity issue concerns those who paid for their education out of savings or borrowed but have already repaid the debt. They would get nothing from this plan. On another level is equity to taxpayers. The denial of repayment revenues to the Treasury would mean that taxpayers would have to fill the financing gap. That burden would fall partly on people who, for any number of reasons, doubtless some of them financial, never received a university degree.

These people then would have to pay for another to receive a credential that presumably affords these beneficiaries greater earnings power than the degreeless taxpayer who must foot the bill. It would be doubly unfair to those who paid for their education out of savings or who have repaid their loans. They not only would have borne the cost of their own education, but now, in this plan, will face taxes to pay for another’s degree.

Beyond these serious equity questions is the issue of the underlying causes of these terrible debt problems—the “root causes,” to use an expression that has become wildly popular in public policy discussions. The loans are as large as they are and so unsupportable because college has become insupportably expensive, and college has become so expensive in large part because public monies (often in the form of loans) have become readily available to the educational effort.

By paying those debts with taxpayer monies, the new White House plan, like the old one, would do nothing to slow or stop this oppressive money spiral that burdens students, family savings, and taxpayers to the benefit of university administrations and faculties. Indeed, far from correcting this ugly pattern, the debt-relief plans would extend and enlarge it.

To be sure, this White House—in this plan and the one before it—has made no claim to address “root causes.” Perhaps in the circumstance, it asks too much of any single plan to do so. But if it’s unreasonable to ask the plan to solve all aspects of this national problem, it’s nonetheless entirely reasonable to ask that it doesn’t exacerbate that problem, as this plan and the earlier one would.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
Milton Ezrati
Milton Ezrati
Author
Milton Ezrati is a contributing editor at The National Interest, an affiliate of the Center for the Study of Human Capital at the University at Buffalo (SUNY), and chief economist for Vested, a New York-based communications firm. Before joining Vested, he served as chief market strategist and economist for Lord, Abbett & Co. He also writes frequently for City Journal and blogs regularly for Forbes. His latest book is "Thirty Tomorrows: The Next Three Decades of Globalization, Demographics, and How We Will Live."
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