Late last month, President Biden made his long-awaited announcement regarding student loan forgiveness. For months, the Administration had been teasing the release of a plan to address the more than $1.6 trillion in student loan debt Americans currently hold.
August’s announcement eliminates $10,000 in student loan debt for borrowers earning less than $125,000, or $250,000 for joint-income households. This number rises to $20,000 for Pell Grant recipients. In addition, Biden has indicated he will extend the student loan pause that has been in place since March 2020.
With this announcement, Biden delivers on his campaign pledge to cancel $10,000 in student loan debt and provides a win for his voter base: young, college-educated Americans. Unfortunately for taxpayers, student loan forgiveness makes far less sense financially than it does politically. While 43 million borrowers will be pleased to find that their college debt burden was reduced, all Americans will be left with the bill.
According to a recent report by the Wharton School of Business, Biden’s student loan forgiveness alone will cost $519 billion over the next 10 years. Even more alarming, researchers predict that the total price tag of Biden’s loan forgiveness plan, when factoring in loan forbearance, a new income-driven repayment (IDR) program and potential “non static” behavioral changes, could exceed $1 trillion.
The National Taxpayers Union (NTU) also recently published a report on how much Biden’s plan is likely to cost each taxpayer. Based on the assumption that the government will need to make up for the total cost of plan by raising taxes, making spending cuts and borrowing, NTU estimates that the average cost per taxpayer will be $2,503.22.
However, this figure differs by income level since American tax burdens are not evenly distributed. For instance, NTU estimates that Americans making between $0 and $50,000 would be responsible for $158.27 while those making between $100,000 and $200,000 would be responsible for $3,158.35.
Regardless of the true cost per household, Americans will need to make financial sacrifices to pay for student loan forgiveness. This agenda means less money in Americans’ pockets while the inflation rate still sits at 8.5%.
Even more concerning than the price tag of broad student loan forgiveness is the fact that it primarily benefits the wealthy and highly educated at the expense of the poor and less educated. Just 37.9% of Americans age 25 or older possess a bachelor’s degree or higher. On average, this group of Americans will earn $1.2 million more over their lifetimes than those without a college education. These Americans are significantly more likely to pursue careers as doctors, lawyers and other specialized professions that require more years of schooling.
Therefore, it should not be surprising that Americans with an income greater than the national average hold over 65% of all student loan debt, while Americans from the lowest income quartile hold just 12%. As noted by the Brookings Institute, this group receiving debt forgiveness is disproportionally, “higher income, better educated, and more likely to be white” than the recipients of virtually all other social programs like Food Stamps or Medicaid.
This administration finds it morally acceptable to rob the poor to pay the rich. Low-income and working-class Americans who did not have the luxury of attending higher education should not have to subsidize the wealthy who did.
Student loan debt is, without a doubt, a serious issue and one that must be addressed, but broad debt cancelation is not the way to go about it. Rather than extending debt relief to those who don’t need it, President Biden should instead focus on the root cause of the problem – the high cost of college tuition.
Tuition costs continue to grow for a number of reasons, but research suggests that one of the primary drivers is the explosive growth of administrative overhead. A study by the Department of Education found that between 1993 and 2009 the number of administrative positions increased by 60%, more than 10 times the rate of growth of tenured professors. Were colleges able to operate on leaner administrations, they would undoubtedly be able to offer cheaper tuition to students.
Biden has the power to draw attention to this important issue and other factors contributing to spiraling tuition rates. Debt cancelation, while providing momentary relief to some individuals, does nothing to resolve this greater issue. It just masks the real problem of college affordability and kicks the can further down the road. Worse, it forces low-income Americans to subsidize the education of the wealthy. If the president truly desires to make a difference in the lives of college graduates and taxpayers, he should propose the types of robust reforms necessary to drive down costs and deliver college affordability to the average American.