In April, the Biden administration announced plans to cancel student loan debt for millions of American borrowers. Intended to “fix the student loan system and make sure higher education is a ticket to the middle class,” this new plan will do none of these things. Instead, it will create a perverse incentive for colleges to raise tuition, students to forgo loan repayment, and future administrations to revisit the issue to score political points. It will also be enormously expensive and subsidize the wealthy and highly educated at the expense of everyone else.
Like its predecessor, this new plan involves the administration taking unilateral action to forgive student loans. This is a problem because the Supreme Court has already determined that the executive does not have such power. Yet, the administration has chosen to push ahead anyway, providing relief in smaller increments.
The details of the plan are pretty straightforward. Meant to complement the expansive SAVE Plan, the plan aims to waive up to $20,000 in accrued interest for borrowers, cancel student debt for borrowers who entered repayment 20 years ago, and eliminate debt for eligible borrowers who didn’t apply to SAVE, among other changes. Unfortunately for taxpayers, the University of Pennsylvania expects the plan to cost $84 billion, not including the $475 billion the SAVE plan is expected to cost. This brings the total price tag of the debt relief handout to more than half a trillion dollars.
This is no small amount of money, meaning that the government will have little choice but to raise taxes, cut spending or borrow more money. None of these are good options for Americans who already pay a significant amount in taxes and are increasingly concerned about the resurgence of inflation, which could be worsened by another government spending spree.
Worse, the latest iteration of the administration’s tax relief plan appears to benefit those who least need financial assistance. The University of Pennsylvania’s analysis of the plan estimates that the plan’s longer-term debt forgiveness component will wipe out debt for 750,000 American households making more than $312,000 in household income. In no world do Americans in this income bracket represent the middle-class families the administration argues it is targeting. Instead, they represent the wealthiest Americans, less than 5 percent of whom make more than $300,000. Consequently, this debt relief plan can only be understood as being a subsidy for the wealthy.
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Nate Scherer is a policy analyst with the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit us at www.TheAmericanConsumer.Org or follow us on X @ConsumerPal. This piece is exclusive to Broadband Breakfast.