Top Five Underappreciated Scandals from Biden’s Student Loan Forgiveness Plan

President Biden’s student loan forgiveness plan is currently being evaluated by the courts. While we wait on them to rule on whether Biden’s actions are legal, we should make sure not to forget about the top five underappreciated scandals that accompanied the announcement:

No. 1: Even liberals object to Biden’s abuse of emergency powers

Biden is relying on emergency authority from the 9/11 era to justify his loan forgiveness. But this is raising concerns among a wide cross section of the population, including those who agree with Biden’s goals. As Elizabeth Goitein writes in the Washington Post,

Biden’s move is a dubious use of emergency authority — one that could invite more troubling misuses in the future.

Emergency powers serve a limited role in our constitutional system. Their purpose is to give presidents a short-term boost in power to handle a sudden, unforeseen crisis (the definition of “emergency”) that is moving too quickly or unpredictably for Congress to address. They often involve extraordinary delegations of authority, such as the power to assert control over domestic transportation. Congress provides these sweeping powers on the assumption that presidents will exercise them rarely and briefly.

Emergency powers are not meant to address long-standing problems, however dire. Nor are they meant to provide long-term solutions. And using them to get around Congress, when Congress has considered a course of action and rejected it, is a clear misuse of emergency powers …

[W]hen a president who champions the rule of law ignores the principles governing the proper use of emergency powers, it opens the door a bit wider. No matter your view of the merits of student debt forgiveness, that’s an outcome that should trouble us all.

No. 2: Reimbursing government employees for payments they never made

The Biden plan involves “reimbursing” some government employees for student loan payments that they never made. As Beth Akers of the American Enterprise Institute notes,

Some federal employees, including those working in the Senate, the House, and for the various agencies, are eligible to receive an employment benefit that repays up to $10,000 of their student loans each year. Despite the pause on loan repayment spanning from March 2020 until today, these programs continued to make payments on employee balances.

And just like borrowers who repaid their loans with their own dollars during the repayment pause, beneficiaries of these programs can also ask for these funds to be refunded. But in this case, the funds won’t go back to the taxpayers who paid them. Instead, they go into the bank account of the borrowers …

[I]t illustrates, once again, how poorly this sloppy effort to win votes rises to meet the actual policy needs of this moment.

No. 3: Tax breaks for rich college graduates

When any other type of debt is forgiven, it is treated as income for tax purposes. This makes sense, because if forgiven loans aren’t treated as income, it is too easy to cheat on your taxes. For example, your employer could “pay” you with a loan, and then forgive the debt, letting you avoid paying any taxes. Thus, forgiven loans are and should be treated as income. But Democrats passed a law exempting student loan forgiveness from income taxes, meaning that in addition to getting the windfall from the loan forgiveness, recipients get another windfall tax break.

[Related: “Biden’s New Student Loan Repayment Plan Would Ruin Student Lending”]

No. 4: Gaslighting on forgiveness being paid for

Biden officials tried to claim that forgiveness was paid for: “It is paid for and far more by the amount of deficit reduction that we’re already on track for this year” according to Bharat Ramamurti, a deputy director of the National Economic Council.

Even the New York Times is calling Biden out for this gaslighting:

That’s not how “paid for” usually works. The budget deficit is coming down… because the government borrowed trillions more than usual last year to pay for a $1.9 trillion stimulus package aimed at helping people, businesses and government endure the pandemic. The officials are effectively arguing that they are paying for student loan relief in part by not borrowing more money for pandemic aid.

Only in Washington could not borrowing as much as you did last year be considered “paying for” something.

No. 5: Gaslighting on inflation

For years, Democrats argued that student loan forgiveness would stimulate the economy. Now that they have already overstimulated the economy, leading to the worst inflation in a generation, they are arguing that student loan forgiveness would reduce inflation.

Josh Barro is appropriately skeptical:

I find most of the arguments about inflation from proponents of forgiveness to be completely disingenuous. Two years ago, one of the leading arguments for student loan forgiveness was that it was supposed to cause people to get out and spend. “Canceling student debt is the single most effective executive action available to provide massive consumer-driven stimulus,” Elizabeth Warren’s office said at the time. But if forgiveness was a stimulative policy that would tend to produce real economic growth when the economy was depressed, then it’s a stimulus policy that will tend to produce inflation when the economy is close to full employment. The notion that deficit spending is currently inflationary is at the core of the argument for the major fiscal law Democrats passed earlier this very month, which, again, they named the Inflation Reduction Act on account of its deficit reduction.

But progressives then argued that the anti-inflationary effect was all about payments. Here is Democrat Representative Ro Khanna:

… forgiving student debt could help reduce the inflation causing so much pain and hardship. Although some economists have raised concerns about the impact this move will have on the economy, Nobel Laureate economist Joseph Stiglitz points out that most people with student loan debt have not been making payments during the pandemic and don’t have the means to repay them. This means there won’t be a rush of new inflationary spending.

This is so logically incoherent, it’s hard to know where to start. First, even assuming the argument that there would be no “rush of new inflationary spending” is correct, that simply gives you no change in inflation, not the reduction that Khanna claims.

[Related: “Five Problems with Biden’s Student Loan Forgiveness Plan (And What To Do About Them)”]

Second, had Biden done nothing, student loans would have truly begun to reduce inflation. The student loan payment pause was scheduled to expire, and as payments restarted, it would have reduced spending and therefore (given our overstimulated economy) inflation. But Biden extended the payment pause, which increases inflation because it allows higher spending due to higher incomes. He then forgives much of the underlying debt, but turns around and argues that because of the repayment pause extension, students wouldn’t have been making payments anyway, so forgiveness is not inflationary.

So, according to the Biden administration, forgiving loans isn’t inflationary because the inflationary effect of wiping away payments is already accounted for by the inflationary expansion of the repayment pause that was part of the exact same announcement. This rhetorical jujitsu is meant cloud the clear conclusion that Biden’s actions will increase inflation, whether you attribute that to the payment pause or the loan forgiveness. Note that this also ignores the wealth effect of forgiveness—by wiping out debt, forgiveness will make people feel wealthier, leading to more spending and therefore higher inflation.

In sum, had Biden done nothing, the resumption of student loan payments would have reduced inflation. But Biden extended the repayment pause while also forgiving loans and then claimed that the interaction between the repayment pause, which increases inflation, and forgiveness, which also increases inflation, somehow magically reduces inflation. The only appropriate response to such flawed reasoning and blatant gaslighting has already been captured on camera.

Image: Adobe Stock


One thought on “Top Five Underappreciated Scandals from Biden’s Student Loan Forgiveness Plan”

  1. It’s really about 2026 — that’s when the children not born in 2008 won’t be turning 18. Enrollment management is already a problem and 2026-2032 will be very lean years for higher ed.

    If the Millennials don’t have to repay their loans, Gen Z won’t choke on signing for theirs. And higher ed is very important to the Dems….

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