Your doctor, your lawyer, think they need some of your money to pay off their student loans? Exactly. But Democrats think they do. E.J. Antonio of the Heritage Foundation clarifies.
Student loan forgiveness is a loser issue for the party that wants to win back the working class. pic.twitter.com/QbvO4TRgx5
— Bill Maher (@billmaher) May 11, 2022
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Antoni: The Biden administration has extended the “pause” on student loan payments for a sixth time. By the time the latest pause ends, those who took out student loans will have been able to go 30 months—two-and-a-half years—without making a single payment nor accruing any new interest.
It’s a raw deal for taxpayers. The Department of Education estimates that, each month, they are losing over $200 billion in repayments and another $5 billion in accrued interest. Since the beginning of the pandemic, the pause has cost taxpayers more than $130 billion in interest payments.
As if that were not sufficient largesse, President Biden is now considering outright “forgiveness” of some portion of all student loan balances. Here, “forgiveness” is a euphemism for a taxpayer-funded bailout. It’s bad policy from any angle.
First, it’s incredibly regressive. The Urban Institute found that “most outstanding student loan debt is held by people with relatively high incomes. … [It] is disproportionately concentrated among the well off.” While lower-income households make a up a larger share of borrowers, upper-income households make up a larger share of outstanding student loan debt. That’s because nearly half (48 percent) of student loan debt is held by households whose borrowers earned graduate degrees. Professional degree holders (doctors and lawyers, for example) earn a median annual salary of $96,772, far more than those who did not attend or graduate college.
The more generous student loan forgiveness becomes, the more it benefits upper income earners. The Federal Reserve Bank of New York recently estimated that 30 percent of loan forgiveness would go to borrowers from high-income neighborhoods. The University of Chicago finds that loan forgiveness would benefit the top 10 percent of income earners as much as the bottom 30 percent of income earners combined.
Second, it’s expensive. The Federal Reserve analysis found that forgiveness of $50,000 per borrower would cost $904 billion; forgiveness of $10,000 per borrower would cost an estimated $321 billion. Cumulative outstanding student loan debt currently hovers around $1.7 trillion, of which $1.38 trillion is federal. Already saddled with a $30.4 trillion debt, America cannot afford to gift hundreds of billions more to people who are comfortably off. It would only add to inflation.
Finally, there is the moral hazard. Student loan forgiveness would likely encourage colleges to raise tuition even higher—particularly if graduates expect student loans to be forgiven again in the future. Indeed, if current student loan balances are forgiven, why wouldn’t today’s students borrow the maximum amount allowed to attend the most expensive school possible, with the expectation that their debt will also be forgiven in the future?
…When the pause on student loan repayments ends in August, it should not be renewed a seventh time. And the Biden administration should abandon its misguided, regressive, expensive, inflationary, and morally hazardous pursuit of student loan forgiveness. The president may think it politically expedient, but the long-term consequences would be disastrous.