The Biden administration may soon decide to forgive $10,000 in student loan debt for borrowers.
This proposal is another sign that the administration is deeply out of touch. It is an unfair handout that would cost huge amounts of money, drive inflation, and benefit wealthy elites rather than lower and middle class families. The American people need relief, not policies that will worsen their already dire conditions to line the pockets of the liberal elite.
The Biden administration’s existing moratorium on student loan repayment, which has been extended several times, has already cost taxpayers $130 billion. Canceling $10,000 of debt for each borrower would cost $373 billion.
The national debt and federal spending are already out of control. In 2020, the US government spent over $6 trillion, while in 2021 the US spent $6.82 trillion, or 30% of the economy. The United States now holds about $243,000 in debt per taxpayer, and the Congressional Budget Office predicts that US interest costs will triple over the next decade, accounting for 12% of the entire federal budget.
In 2021, US interest payments on its debt alone cost about $2,600 per household.
Democrats argue that the huge cost of canceling student loan debt doesn’t matter because it would stimulate the economy by giving borrowers more money to spend.
In reality, this plan would cost the government far more than it would provide stimulus. The Committee for a Responsible Federal Budget conducted an analysis concluding that for every dollar the government would spend on student loan forgiveness, as little as 3 cents and at most 27 cents of economic activity would be produced.
This reckless spending will inevitably make inflation even worse than it already is.
The federal government is flooding the economy with so much money that demand is growing too fast for production to keep up. In May, inflation hit a new 40-year high of 8.6%. Inflation is now costing US households an extra $460 per month.
Low-income households are disproportionately affected by inflation. Indeed, low-income Americans spend a much higher percentage of their income on basic goods. In the event of high inflation, high-income households reduce their purchases of luxuries, while low-income households cannot reduce much of their spending, as their spending is mostly on basic necessities like housing and groceries. High-income households can “stock up” on these goods when prices are cheap.
Not only would this policy hurt low-income Americans by exacerbating inflation, it would also be fundamentally unfair to them. Many low-income Americans do not have significant student loan debt because they decided not to go to college or took a cheaper route through community college due to the high cost of tuition. .
Millions of Americans have served in the military to receive a free education, worked long hours to attend school instead of going into debt, or been proactive in paying off their debt. All these sacrifices were made by people who could only work with the information they had: if they took out loans, they would be held to their contractual obligations.
Not only have these Americans been deprived of a certain upward mobility that comes with higher education, but they are now being told that their sacrifices were in vain.
Who benefits then? First, the elite.
The Brookings Institution described those who would benefit the most from student debt forgiveness as “higher income, better educated, and more likely to be white.” The top 20% of households currently hold $3 in student debt for every $1 of debt held by the bottom 20% of households. About 75% of student loan repayments come from the top 40% earners.
Even after spending billions to cancel debt and severely hurt the economy, this policy could actually make the student loan crisis worse for future generations. To begin with, the main driver of high tuition has been federal subsidization of colleges. If the government decides to further subsidize education costs, it will incentivize colleges and universities to charge students even more for tuition.
Additionally, canceling student debt will signal to future borrowers that their debt will also be canceled at some point. Students will be encouraged to go into debt as much as they want, because they don’t expect any consequences.
Existing borrowers with remaining balances can stop making payments in the hope that more of their debt will be forgiven in the future. It would be radically unsustainable.
Americans worry about how they will pay for their next meal and transportation to and from work. Handouts to wealthy elites should be completely out of place, especially when those handouts come at the expense of those who suffer from soaring prices. This policy is a slap in the face for working families.
Isabelle Morales is a political communications specialist at Americans for Tax Reform.