For years, I have been writing about the deficiencies of the federal student loan programs, but I thought diminishing returns were setting into my harangues—everything important had been said. But don’t underestimate the deleterious effects of disregarding the rule of law, the crassness of political ambitions, and the manifest stupidity of some of President Biden’s top advisers.
The latest Biden Administration student loan forgiveness plan hits a new low, delivering a hit to my already justly reputationally challenged academic discipline of economics.
Last year, the Supreme Court deemed the Biden administration’s student loan forgiveness proposal unconstitutional. If Biden knew French, he might have echoed Louis XIV’s famous “L’État, c’est moi!” asserting, “I am the elected leader of our nation, and no court or constitution will impede me.” Loan Forgiveness II is being unveiled.
Sidestepping legal authority within a clause of the Higher Education Act of 1965, the new proposal may be legally acceptable. It’s astounding how the Department of Education (ED) can efficiently maneuver and expedite the arduous rule-making procedures mandated by the 1965 law to attain its true goal: providing student loan relief to millions of Americans before the upcoming presidential election in November.
Repeating what many have said before, federal student loans have significantly raised the cost of higher education, contributed importantly to a costly and academically debilitating university administrative bloat, caused sizable underemployment of college graduates, lowered academic standards, and even, by its indirect effect of discouraging marriage and family formation, lowered fertility rates and, in the process, reduced our future capacity to meet fiscal obligations like Social Security and Medicare. The icing on the cake: student loans have not, on balance, improved outcomes for the poor people they were designed to help.
ED showed its incompetence and contempt for the rule of law by not completing a federal Congressional mandate dating back several years to have a simplified Free Application for Federal Student Aid (FAFSA) form available for this coming academic year. Colleges are scrambling in light of the manifest ineptitude and indifference of the ED to get needed FAFSA information for next year’s applicants. Some of us told the Secretary of Education nearly 20 years ago that FAFSA simplification could be completed in months, if not days. But somehow, the ED can, with lightning speed, adopt rules to help the President in November.
But will it?
Giving loan forgiveness to 20 million Americans might win some votes among those benefiting, but it may, if the Republicans are smart—arguably a dubious proposition—lead to mightily annoying even more Americans who either did not go to college, went to college without borrowing from the Feds, or went to college while borrowing from the Feds and then dutifully reduced their spending to pay off their loans.
A high school grad who wanted to borrow $50,000 to start an auto body repair shop gets no government assistance, but his richer college-educated neighbor who borrowed $100,000 and got a law degree leading to a highly paid job gets “loan forgiveness.” Shame.
It seems probable that individuals who diligently repaid their college loans lean towards political conservatism, whereas those who disregarded their loans tend to be more liberal. Consequently, Biden’s proposal primarily benefits his existing supporter base. Despite Biden’s dwindling support among young people, I doubt that loan forgiveness will significantly bolster his vote count; in fact, it appears to be a flawed public policy move.
But the icing on the cake of this horror story is the input from the President’s Council of Economic Advisers.
Historically, this has been a prestigious council led by three well-known and highly regarded economists trying to correct economic deficiencies in public policy. Not now. The current chair is a jazz musician with a doctorate in “social welfare,” not economics, and only one of the three has published papers in prestigious peer-reviewed economic journals.
According to the Wall Street Journal, the claim that loan forgiveness would stimulate consumption spending would even have John Maynard Keynes cringing. This is especially concerning given that the government, during a period of under four percent unemployment rates, is already running two billion-dollar budget deficits, significantly accelerating the timeline until the nation reaches Fiscal Armageddon and potentially bankrupts our Social Security and Medicare funding apparatus.
Photo by Vitalii Vodolazskyi — Adobe Stock — Asset ID#: 204141690
What needs to be understood is that this has nothing to do with current debtors — former students with outstanding student loans. With income-based repayment and public service repayment, the student loan companies can no longer attempt to get money that people simply do not have, the way they were in the ’80s & ’90s.
No, this is about future student loans and the implicit promise that there will someday be another round of forgiveness. This is being done so as to encourage high school students to take out student loans and to abate the legitimate fears of their parents that it won’t be possible to pay back these loans.
The thing to remember is that a healthy higher education industry is the bedrock of the Democratic Party, and if student enrollment collapses, the whole Calliope crashes to the ground. There aren’t faculty making 6 figures and donating to the DNC, there aren’t researchers studying gay fruit flies, there aren’t all the college towns leaning left, all of this disappears like dust in the wind.
It’s the student loan dollars that fund this largess and hence they must be preserved for the good of the party. High school students must be convinced that borrowing vast sums of money for degrees in underwater basket-weaving is a good thing.
What’s not being said here is that we could afford to pay off everyone’s existing student loan if we simply didn’t issue any new ones — that the subsidy money from the new ones would pay for cancelling the old ones. But that would be the end of the Democratic Party as we know it, and we can’t have that…