Columnist Richard Fein: Student debt cancellation is bad policy


Published: 9/25/2022 1:09:28 PM

Modified: 9/25/2022 1:08:38 PM

This column will present my objections to President Joe Biden’s executive order canceling all or part of the college education loans for about 40 million people.

Let’s quickly review the basic parameters: The order cancels $10,000 in federal student loan debt ($20,000 for Pell Grant recipients) for individuals with incomes up to $125,000 a year or for couples with incomes up to $250,000. If you are wondering why the president set the income ceilings so high when the average family income in our country is $88,000, so do I. It is important to realize that this debt cancellation is not by an act of Congress. Rather it is by decree of the president, officially known as an executive order.

Here are my objections:

1. The cancellation is unwarranted. The average borrower owes about $37,000 to be paid off over 20 years. How is that an insuperable burden, let alone the “national emergency” Biden cited as a legal basis for his executive order? 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.

While the COVID-19 pandemic was a sudden, unforeseen development, COVID-19 itself has been with us for 2½ years. Indeed, it could well be our “new normal.” Student loan debt has been a fact of life for decades. Also, unlike the previous student loan deferrals and waivers, this debt forgiveness is a permanent act, not a stopgap measure.

It is worth noting that college graduates did receive something for their money, namely an education. What’s more, college graduates taken as a whole will make more money in the course of their working life than nongraduates. Remember, those who took out these loans promised in writing to pay them back.

2. The cost of the cancellation is huge and will be paid by other American families.

The revised Budget Model of the Wharton School at the University of Pennsylvania estimates that the student loan cancellation will cost at least $300 billion. Depending on future details of the full Individual Debt Reduction (IDR) the cost could rise to $469 to $1 trillion over a 10-year budget window.

Even at the lowest cost estimate the debt cancellation equals $2,000 per tax filer. At the high end estimate it would be over $6,000. Is that fair to the 100 million Americans who file tax returns and do not have their loans reduced or totally canceled?

It is worth mentioning that the reduced student debt obligations mean hundreds of billions of dollars will not be paid to the U.S. Treasury. It follows that either other expenditures will be cut, taxes will be raised, or the national debt, now at $30 trillion, will be increased.

3. Mass debt cancellation by executive order sets a dangerous precedent.

If a president can expend between $30 billion and $1 trillion of taxpayers’ money without explicit approval from elected members of Congress, doesn’t that open the door for future presidents to usurp the power of the purse and unilaterally spend trillions more down the line? Our Constitution established a separation of powers (executive, legislative, judicial) that shouldn’t be ignored.

4. It is unfair to the many students who attended colleges that were more affordable for their family and/or worked many hours per week to reduce the amount they would need to borrow in the first place. Similarly many people diligently paid off their debt in full. Making responsible choices about what you can afford and/or paying off your debts on time shouldn’t work against you.

5. Moral hazard: If people planning to attend college believe that their student debt will be reduced or even eliminated in the future they will have an incentive to borrow more than they would have otherwise. Colleges will have an incentive to raise tuition in the belief that increased cost won’t significantly reduce applications.

6. The student debt cancellation may be inflationary. “Student loan debt relief is spending that raises demand and increases inflation,” according to Obama-Biden Administration Treasury Secretary Larry Summers. Jason Furman, the Obama- Biden chief economist, said that “Pouring roughly half trillion dollars of gasoline on the inflationary fire that is already burning is reckless.”

In sum, canceling…



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