Since President Biden announced his student loan forgiveness plan, the reaction has been predictable and political.
Liberals love it.
“I am very grateful for this watershed moment of a first step – it is so encouraging, thrilling, and has already changed SO many people’s lives,” New York Rep. Alexandria Ocasio-Cortez posted on Instagram. She added, “It is up to us, and to you, to decide if we are going to stop here, or if we are going to keep pushing.”
Conservatives loathe it.
“If you are that slacker barista who wasted seven years in college studying completely useless things, now has loans and can’t get a job, Joe Biden just gave you 20 grand,” railed Texas Sen. Ted Cruz, who added that it could “drive up turnout, particularly among young people” for the upcoming midterms – “if you can get off the bong for a minute and head down to the voting station.”
They’re all missing the point.
Sure, this is a political move. Biden timed his announcement to extract more midterm votes. I don’t like it, but I understand it. Both parties do it.
Here’s what I don’t understand: Why are Biden and his supporters taking the least rational and most costly path toward helping those drowning in student loan debt?
I’m a CPA and founder of several companies that get Americans out of personal debt. So you might think I’d be pleased with Biden’s plan. I have three good reasons for adamantly opposing it…
1. It helps those who should help themselves
The most maligned aspect of Biden’s plan is simply the income limits. The White House says it “will provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education” to those with “individual income is less than $125,000 ($250,000 for married couples).”
Helpfully, it adds, “No high-income individual or high-income household – in the top 5 percent of incomes – will benefit from this action.”
That’s not much comfort to the rest of the nation.
Yes, I know the talking points here. Plenty of nurses, professors, and other highly trained and compensated professionals are saddled with student loans that are still dragging them down. And yes, I know the White House insists “87 percent would go to people making less than $75,000.”
Yet you’re still spending nearly $330 billion over the next decade to wage earners who, while they definitely are hurting, probably don’t fear bankruptcy and homelessness. In my career, I’ve helped subprime Americans who literally contemplate losing everything. I’ve trained certified credit counselors who can tell you horror stories of clients sobbing on the phone.
I haven’t asked any of my former clients, but I wonder how they feel about $330 billion going to people who make more money than they can ever hope to earn.
2. It helps those who have already helped themselves
Student loan forgiveness – as a general concept and not just this plan – helps a few people in the moment but dooms a lot more to indebtedness later on.
That’s because it doesn’t address the demand side of the issue.
When President Obama federally guaranteed most student loans, tuition rose. And why not? Colleges are businesses. Not surprisingly, this angle has been seldom covered over the past week. Perhaps the most prominent analysis was a Wall Street Journal editorial that predicted, “Academia will keep raising tuition, and students will have incentive to take out more loans.”
Imagine you’re a university president contemplating tuition hikes. Unlike any other business, you don’t need to worry if your customers can afford the higher prices. The federal government just bailed out your debt-ridden old customers, and one political party is agitating for even more. Why would you suddenly become price-conscious?
It’s reasonable to expect college will get more expensive for this year’s freshman class, and they’ll face even more student loan debt than current graduates. This is why I’m opposed to Biden’s plan, even as I’ve spent three decades as an advocate for struggling Americans. His latest round of forgiveness does nothing to help the next generation of college students.
3. It costs everyone
While there’s some dispute about the numbers, the conservative National Taxpayers Union Foundation estimates Americans earning less than $50,000 will pay around $160 in more taxes, while those earning between $200,000 to $500,000 would pay nearly $10,000.
Now, with those amounts spread over a decade, that might seem like a financial burden on anyone. However, there’s a larger issue here: This is just the beginning of that burden.
Since Biden has done nothing to rein in college costs, another round of student loan forgiveness is destined to arrive. You can imagine other graduates agitating, “Hey, what about me?” Like the change of seasons, new rounds of forgiveness will come right on schedule.
Of course, that doesn’t even account for the latest liberal cause. Vermont Sen. Bernie Sanders has praised Biden’s plan but also used it to revive his “free college” proposal – which, of course, wouldn’t be free at all to taxpayers. His cry has been taken up by several Democrats in Congress.
The true solution is boring but it works
Republicans are already preparing to go to court to reverse Biden’s plan, but they haven’t touted their own solution, either.
You want to put a dent in the student loan crisis? Here’s what I proposed two years ago, and it’s still true today: “Right now, the average interest rate is 5.8 percent among all households with student debt. I propose cutting those to 1 or 2 percent.”
It’s not sexy, it’s not partisan, but it’ll work. As I ended that column…
Here’s the simplest truth: People who pay something for their education will also pay more attention to it.
I don’t expect politicians of either party to endorse or even study that plan, and I don’t expect the media to tout it, but it would work. Graduates would get some relief, and universities would be put on notice that the government will give a break, but not a bailout.
Best of all, in our hyper-partisan era, this is a plan in which both parties can claim victory. Democrats stood up for the college graduates who are increasingly comprising their party, and Republicans are being fiscally conservative because the federal deficit isn’t adversely affected.
I hold out hope some insightful politicians will embrace boring.