Not yet in office for two years, President Joe Biden is upping his election-minded giveaways. In this case, he is offering as much as $20,000 to everyone who borrowed for college. And that is on top of billions of dollars in previously canceled repayments, which were skewed toward those with middle or upper incomes.
Yet the whining in Washington has grown only louder as beneficiaries of the president’s new educational welfare scheme have complained that it wasn’t generous enough, that they shouldn’t have to pay back anything. After all, why have taxpayers to mulct if you don’t squeeze every last penny out of them? School borrowers want it all! Such is America’s true politics of greed.
Reflecting this perspective was the Washington Post’s Christine Emba, who wrote an article that reads like self-parody. Why, oh why, do some people act so uncompassionately by opposing being stuck with other people’s debts to pay? So what if we worked hard and lived up to our obligations, apparently for nothing. “Good luck is always a little random,” argues Emba. But the school-borrower bailout does not reflect luck. Rather, it’s standard interest-group politics: You elect your buddies, who then use taxpayer funds to thank you for your votes. Giving away the public’s money to underwrite a private purpose — seeking a university or professional degree — is not “doing something good.” It is an act of base politics that helps fuel today’s rampant cynicism in Washington.
College is supposed to create an educated professional class. Listen to the wailing and gnashing of teeth from the multitudes who are begging for a federal handout, and you’d assume that formal schooling had destroyed their brains. They seemingly regress to infants, acting like nothing they do is their responsibility.
Sympathy would be appropriate if they had been forced to take out loans at gunpoint, their families were held hostage until they signed up for years of meaningless classes, and mobsters shadowed their every move until they completed a decade or two of “schooling.” If so, think of the Law & Order episode that could be produced. Alas, no such case apparently exists.
Admittedly, it is painful to listen to stories from young and old professionals alike who insist that they have been so foolish, careless, prodigal, and wasteful that they absolutely cannot survive without forcing the rest of us to pay off their debts. Rather than hiding their woes out of shame, they write newspaper articles without embarrassment, telling the entire world what foolish chumps they were and sending the message that the bigger and more disastrous their escapades the better. Such a tragic lack of self-esteem.
Imagine abasing yourself so. Imagine going public and asking: How was I supposed to know that borrowing thousands, tens of thousands, or even hundreds of thousands of dollars to go to a high-priced school with a poor reputation in order to collect a useless degree was a bad idea? And it’s not just the money. “I think the student loan crisis is certainly decreasing morale,” observed Kevin Miller, associate director for higher education at the Bipartisan Policy Center.
No doubt, it is tough on the ego when others expect you to act responsibly. So, work overtime to blame someone else, namely Uncle Sam. My favorite story from the latest oppressed class is that of a university professor who celebrated an earlier taxpayer student-loan write-off by going on vacation. Fortune reports that she and her spouse planned “to take a weeklong trip to Europe in a few months” with the money saved. I am so happy the taxpayers could help. NOT!
I’m approaching retirement. I don’t like debt and don’t want to end my life stuck on the financial edge. So, I paid off my student loans. I bought a used car without a loan. I pay off my credit cards monthly. And I’ve paid off my home mortgage. But now I’m stuck bailing out the fiscally irresponsible who borrowed badly and don’t want to acknowledge the consequences of their actions. I am sorry for their plight. But it isn’t my fault, and I shouldn’t be expected to pay their bills.
I’m not alone. Here at The American Spectator, Melissa Mackenzie offers a long list of genuine victims of the president’s political payoff:
- Graduates who worked their way through college
- Graduates who have paid their loans back (me)
- Parents who saved up to pay for their kid’s college (me)
- Parents who paid part of their kid’s college tuition
- Graduates who took private loans
- Graduates who consolidated their loans
- Current students
- Working-class people who never went to college
- Poor, working-class, and middle-class people who can’t buy food or gas because of inflation
- Anybody with a sense of fairness or a brain that can comprehend how this punishes those who do the right thing and incentivizes those who don’t.
The president’s plan should end before it begins. It appears to be illegal. He cannot just give thousands of dollars to each student borrower. Contra current assumptions made by the Left (and some by the Right), the Founders did not create an elective dictatorship.
No less an authority than House Speaker Nancy Pelosi denied that Biden has this authority. Last year, she said, “The president can’t do it — so that’s not even a discussion.” She added, “Not everybody realizes that, but the president can only postpone, delay but not forgive.”
The issue is likely to end up in court, although litigants might find it difficult to get legal “standing.” Of course, the crying and complaining — and demands to destroy an independent judiciary — from this new welfare elite will escalate to epic proportions if jurists block the presidential handout.
Even if Biden wins his claim to the possess unilateral authority to give away taxpayers’ money, it will be a wretched decision. Most obviously, his debt cancellation is political bribery, not public policy. A high proportion of Democratic voters are university educated and have higher income — 46 percent of them in 2020 were college graduates. Biden’s progressive supporters have been campaigning for their own unique welfare program since he was elected. Indeed, this is something of a watershed moment, as noted by Josh Hammer in The American Spectator. He writes:
[T]he Democratic Party, once the presumptive partisan home of the working-class and the downtrodden, has never been more confident about who it is that now comprises its core voting base: affluent, predominantly white, and predominantly urban or suburban college-educated elites.
The loan bailout is bad policy on many levels. Don’t believe the administration’s feel-good estimates of the cancellation cost. The Government Accountability Office has reported that between 1997 and 2021 the Department of Education underestimated student-loan spending by $311 billion. The Committee for a Responsible Federal Budget warns that the 10-year bill for Biden’s write-off will run between $440 billion and $600 billion, with about a half-trillion dollars most likely. And that assumes that borrowers honestly self-report their income, a measure that would prevent the cancellation of debt of those who make more than $125,000 annually.
This should matter at any time, but it’s especially important now. Uncle Sam is bankrupt. The ratio of publicly held federal debt to gross domestic product already is around 100 percent. By midcentury, expects the Congressional Budget Office, that number will be 185 percent, well above the level of Greece when the latter suffered through the Euro debt crisis. The president’s gift to his supporters will add yet another roughly half-trillion dollars to Uncle Sam’s liabilities in the coming decade alone.
In the immediate future, the write-off also will fuel inflation. Harvard professor Jason Furman, one of former President Barack Obama’s top economic advisers, tweeted:
Pouring roughly half trillion dollars of gasoline on the inflationary fire that is already burning is reckless. Doing it while going well beyond one campaign promise ($10K of student loan relief) and breaking another (all proposals paid for) is even worse.
Although the payoff in the first instance goes to student borrowers, the cancellation is mostly a subsidy for the university-industry complex. By flooding schools with extra cash, Washington spurred tuitions upward. My Cato Institute colleague Neal McCluskey observed, “If you give loads of people easy money to pay for one thing, the price of that thing will rise as people demand more of it, and with greater bells and whistles.”
Making cheap loans available encouraged some kids who were marginal scholars at best to go to school. Most important, schools knew the money was available and soaked it up with tuition hikes. By one estimate, every extra taxpayer buck to students pushes educational costs up 60 cents. McCluskey figured that real college prices have doubled over the last three decades. If schools really care about burdensome borrowing, they, not the taxpayers, should pay off the student’s loans if his or her income lags national growth.
Presidential debt cancellation always was targeted at the well-to-do, going to those making $125,000 annually, or more than twice the median income for individuals working full time. Even the Urban Institute admits, “The concentration of education debt among the relatively affluent means that some policies designed to reduce the burden of education debt are actually regressive.”
The wealthy are more likely to go to universities and borrow more. In contrast, explains the Urban Institute, “People in the lowest income quartile tend to have little or no college education.” Thus, those in the top fifth of income hold three times as much debt as those in the bottom fifth. McCluskey figures:
[W]ith $10,000 [in debt] canceled, 21 percent [of the benefit] would go to the top quintile (divided into the top two deciles) of households by income, and only 13 percent to the lowest quintile. The top two quintiles would receive nearly half of all cancelation. $50,000 cancelation would be even more skewed, with the top quintile getting 24 percent of the total and the bottom only 8 percent. That’s because wealthier people tend to consume more – and more expensive – education.
In fact, the more sophisticated the analysis, the greater the estimated benefit for the prosperous. Report economists Sylvain Catherine and Constantine Yannelis:
We study the distributional consequences of student debt forgiveness in present value terms, accounting for differences in repayment behavior across the earnings distribution. Full or partial forgiveness is regressive because high earners took larger loans, but also because, for low earners, balances greatly overstate present values. Consequently, forgiveness would benefit the top decile as much as the bottom three deciles combined.
Only about a third of people try higher education, and that number is inflated by today’s vast federal subsidies. As for working people, not so much. The borrowers filling newspapers and airwaves with their patented tales of woe are not tradesmen, store managers, salesmen, mechanics, file clerks, laborers, apprentices, landscapers, and construction workers, but intellectual wannabes. Hence both the White House and the Department of Education are full of candidates for thousands of dollars in public payoffs. Nice work if you can find it! A lot of blue-collar workers probably are wondering if they can identify as students so that their auto loans can identify as educational debt. What do you think, Uncle Joe?
Even among those going to school, student loans are biased upward, with higher-income groups owning a steadily increasing share of educational loans. Four out of every 10 dollars owed went toward obtaining Ph.D.s, J.D.s, and M.D.s. Only about a fifth of Americans have educational debts. Many students of limited means attend less expensive schools, spread out classes, and work while studying. Those who paid their own way will now have to pay twice — for themselves and for the improvident borrowers begging for their special welfare program.
Anyway, most borrowers make more because of school. According to McCluskey, college graduates typically earn between $1.2 and $3.1 million more over their lifetimes than those who do not attend college. (Grads are more likely to both have jobs and earn more.) This amount is much more than the loans to be repaid. The fact that not everyone enjoys this bounty is no reason to offer subsidies to all, amounts that will be paid by those who received none of the benefits.
Bad policy is common in Washington. So is unfair policy. The student-loan write-off is both. Some progressive leaders have admitted as much to the chagrin of the sanctimonious bailout lobby. For instance, while running for president, Pete Buttigieg, now transportation secretary, admitted:
Americans who have a college degree earn more than Americans who don’t. As a progressive, I have a hard time getting my head around the idea of a majority who earn less because they didn’t go to college subsidizing a minority who earn more because they do.
Pelosi, too, exhibited a surprisingly common touch: People “might not be happy if ‘your child just decided they, at this time, [do] not want to go to college, but you’re paying taxes to forgive somebody else’s obligations.’” Even the president once doubted the fairness of subsidizing those who attended high-priced Ivy League schools. Perhaps the solution is to just make everything in life free. Let the wealthy — or Persian Gulf monarchs, or somebody, anybody else — pay. Then we will all be rich, equal, and happy!
Biden’s educational bailout demonstrates the bankruptcy of the progressive grifter state. Payoffs to political supporters and activists, welfare for the rich and influential, subsidies for intellectuals and elites, rhetoric for working people and lesser classes, and submission by everyone else. A lucky few benefit; the rest of us pay.
To obscure the obvious, the president played the demagogue, complaining about tax cuts for the rich. Actually, tax cuts typically go to those who work and pay taxes, not fiscal beggars and wastrels who live off of the money extorted from others. The president presumes he can spend our money to buy votes for his party. It is up to the American people to prove him wrong.
Doug Bandow is a senior fellow at the Cato Institute. A former special assistant to President Ronald Reagan, he is the author of The Politics of Plunder: Misgovernment in Washington and The Politics of Envy: Statism as Theology.