There’s never a good time for a government handout targeted at disproportionately affluent Americans. But there is a bad time, and it’s now.
The Biden administration recently announced that it will clear $5.8 billion in federal student loans for students who attended the now-defunct Corinthian Colleges. Taxpayers could probably feel better about that move were it paired with efforts to shield federal student loan programs from high-risk ventures, such as Corinthian obviously was. But the move also paves the way for the administration to unilaterally implement proposals for more broad-based student loan forgiveness.
The proposal being floated at the moment would cancel $10,000 in student debt per borrower, means-tested at $150,000 in annual income per individual or $300,000 per household. This would be a heavily regressive policy, despite what student debt cancellation advocates would have you believe.
After all, even as college graduation has become more common, it still pays to graduate from college. Labor Department data shows that the median college graduate earns about 70 percent more than the median American who stopped at a high school diploma. The median American with a graduate degree earns more than double the median high school graduate.
Student debt tends to be concentrated among Americans with the highest educational attainment, and consequently the highest earning potential. A recent paper by University of Chicago economists Sylvain Catherine and Constantine Yannelis estimates blanket forgiveness of $10,000 per student loan borrower would benefit the top ten percent of households more than three times as much as the bottom ten percent.
Even though a means test would reduce this imbalance somewhat, the administration is still proposing a high ceiling for a means-test — even $150,000 in annual income puts a taxpayer around the top 10 percent of Americans.
That makes widespread student loan forgiveness a regressive policy under any circumstances. But in the midst of an overheated economy suffering from high inflation, there’s even more reason not to pursue a policy that even its advocates have referred to as “stimulus.” There are few things the economy needs less right now than “stimulus.”
In a recent op-ed, President Biden laid out his “plan” for combating inflation. In truth, it is not much of a plan at all, and leaves out important actions that actually could help, such as allowing Section 301 tariffs to expire and providing a Jones Act waiver. However, there was one suggestion that could help — deficit reduction, though Biden unsurprisingly comes at it by proposing to rake in more taxes rather than cutting back on unsustainable spending.
But if Biden is serious about fiscal responsibility, broad-based forgiveness of student loans would be an odd way to show it. The Committee for a Responsible Federal Budget estimates that the proposal to forgive $10,000 in means-tested student loans per borrower would cost the federal government $230 billion (and $250 billion with no means-test). Should Biden instead move to forgive $20,000 per borrower, it would cost the government $480 billion. That’s on top of the current, $130 billion cost of the pause on student debt repayments and interest set to run through August.
Should Biden allow his policymaking process to be hijacked by activists in this way, taxpayers could be left with no doubt that Biden does not take inflation seriously. Pumping hundreds of billions in deficit-financed dollars into the economy is no one’s idea of how to slow down inflation.
