Commentary
When debts become unpayable, they should be forgiven. That’s the opinion of Michael Hudson, a professor of economics at the University of Missouri–Kansas City. Regardless of the context, the idea of debt forgiveness sounds ludicrous to some. To some, sure. But not to all.
Last month, President Joe Biden said he was seriously considering widespread student debt forgiveness. Although many commentators on the left were quick to praise Biden’s comments, important questions must be asked, including the following: Is widespread student debt forgiveness a good idea? If Biden goes ahead with his plan, how much will that cost the United States, a country that is already submerged in a sea of debt?
As authors at The Hill recently reported, Biden plans “to expunge at least $10,000 per borrower.” He intends to execute this rather controversial plan “through executive action.” More worryingly, with loan forgiveness, “the door,” we’re told, is “open to possibly larger” amounts being written off. Lots of options are currently “on the table.”
Members of the administration “are doing a lot of listening right now,” a source familiar with the matter told The Hill. Listening to who exactly? Well, one assumes, influential people such as Senate Majority Leader Chuck Schumer (D-N.Y.) and Sen. Elizabeth Warren (D-Mass.), both of whom have called on the president to cancel up to $50,000 in debt per borrower.
Senate Majority Leader Chuck Schumer (D-N.Y.) speaks during a press conference about student debt outside the U.S. Capitol in Washington on Feb. 4, 2021. Also pictured, L-R, Rep. Mondaire Jones (D-N.Y.), Rep. Alma Adams (D-N.C.), Rep. Ilhan Omar (D-Minn.), Sen. Elizabeth Warren (D-Mass.), and Rep. Ayanna Pressley (D-Mass.). The group of Democrats reintroduced their resolution calling on President Joe Biden to take executive action to cancel up to $50,000 in debt for federal student loan borrowers. Drew Angerer/Getty Images
Will Biden acquiesce? There is a moratorium on federal student loan repayments, which will expire on Aug. 31. Although Biden has extended the student loan payment moratorium four times since he was sworn in as the 46th president, the last one was explicitly referred to as the “final” extension. In short, we should have our answer by the end of August.
The Motherlode of Bad Ideas
If the president does decide to forgive, say, $10,000 in debt, how will his decision affect the country? In a nutshell, quite badly, it seems.Before getting into the actual costs of forgiving outstanding debt, another important point must be addressed. The forgiveness of debt doesn’t address the underlying problems.
Education has become prohibitively expensive. As the academic Avery M. Davis wrote last year, debt forgiveness fails “to address the root cause of the problem: that, each day, we issue thousands of new loans to students in response to rising higher education costs and decreased funding for a public post-secondary education.”
Moreover, people are getting less bang for their buck, with an increasing number of degrees being rendered worthless. Throwing money at this particular problem is similar to using antidepressants to battle crippling depression. The drugs don’t work. Debt forgiveness might feel good, but feelings, as Ben Shapiro might say, can’t compete with facts.
Speaking of facts, let’s talk about the cost of forgiveness. The economist Adam Looney has discussed the dangers of “even modest student loan forgiveness.” By modest, Looney means $10,000. Such proposals, he wrote, “are staggeringly expensive and use federal spending that could advance other goals.”
What other goals? How about a focus on making skilled trades great again?
As I have discussed elsewhere, the United States needs skilled electricians and carpenters, two careers that offer great autonomy and flexibility, not to mention a rather healthy paycheck. Instead of flushing inordinate amounts of money down the proverbial toilet, a focus on “resuscitating” skilled trades could prove to be a more fruitful endeavor.
“The sums involved in loan-forgiveness proposals under discussion,” warned Looney, “would exceed cumulative spending on many of the nation’s major anti-poverty programs over the last several decades.”
According to a recent analysis published by the Federal Reserve Bank of New York, to erase $10,000 per borrower, the U.S. government would need to cancel more than $320 billion in federally backed loans.
What’s another $320 billion? After all, the U.S. Treasury Department reported in February that the gross national debt had surpassed $30 trillion for the first time in the country’s history, a figure that Forbes called “incomprehensible.”
When Forbes, a magazine dedicated to extreme wealth, calls a sum “incomprehensible,” then we know things are, shall we say, pretty bad.
If the Biden administration does agree to forgive the debt, who stands to benefit the most?
According to financial analysts at the University of Chicago’s Becker Friedman Institute for Economics, wealthy Americans benefit the most. Writing off student loan debt would allocate roughly $192 billion to the country’s top 20 percent of earners; meanwhile, less than $30 billion of the debt relief would find its way to the 20 percent at the other end.
So, one wonders, why would the Biden administration even bother canceling repayments? Well, it’s all about appeasing certain voters. According to Catalist data, some 43 percent of the people who voted for Biden in 2020 graduated with a four-year college degree.
As the author Jerusalem Demsas recently noted: “Given that trend, student-loan forgiveness may seem like the classic tale of a political party transferring a valuable benefit to a crucial constituency.”
Erasing student debt might prove costly for the country, but it might prove to be a shrewd, self-serving investment for the current leadership. Then again, it could prove to be the final nail in the United States’ coffin of debt.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
