Student Loan Debt Forgiveness: What is this About?

First and foremost, student debt forgiveness is about votes. The approval ratings for President Biden are underwater in virtually every key demographic. He is also well underwater with 18 to 34 year-olds, the group most impacted by this decision. Young voters are generally liberal and open to voting Democrat. Typically, a Democrat president would be doing well with this group, but Biden hasn’t hit the sweet spot yet, so this is a strong appeal to bring this demographic back in-line with expectations.

Sure, politics is a cynical business, but politicians have always bought votes. We know how the game is played. Even if it is in the Democrats self-interest, maybe it is still a good idea? Already, a little more than a third of the nation has a college degree. Supporters argue that a more educated society means we would each be better off and the country as a whole would benefit as well. Or maybe not.

It Helps Us All?

Why stop at forgiving just $10K of debt? Won’t we get more benefit canceling more debt? Senator Bernie Sanders, after all, wants to make college completely free. Maybe that’s the ticket?

We all know there is no such thing as a “free lunch”. When the government makes something free, they transfer the cost from one group to another. Taxpayers will now assume the burden of loans forgiven. In other words, the individual who received the benefit would have no cost, but we who did not receive the benefit, must pay the debt. Still, Senator Sanders tells us we all benefit:

https://www.cnbc.com/2021/04/21/sen-bernie-sanders-introduces-bill-to-make-college-free-and-have-wall-st-pay-for-it.html

“In the wealthiest country in the history of the world, a higher education should be a right for all, not a privilege for the few,” Sanders said in a statement. “If we are going to have the kind of standard of living that the American people deserve, we need to have the best educated workforce in the world.”

We won’t be the wealthiest nation in the world if we continue spending and forgiving debts at the current rate.

Sure, let’s have a well educated society, but I don’t see how I benefit by paying for your degree in bagpiping, floral management, puppet arts, recreation and leisure studies, or other esoteric degrees: https://www.fastweb.com/career-planning/articles/the-35-weird-but-cool-college-majors.

It is even a stretch to see how your traditional liberal arts degree in English, Philosophy, Foreign Language, Political Science, Art History, Music, etc.. benefit the rest of us. We also have a ton of people with education degrees these days, but the quality of our education seems be declining still. Public education K-12 is free and it is certainly not the best in the world.

https://www.thebalance.com/the-u-s-is-losing-its-competitive-advantage-3306225

The Program for International Student Assessment tests 15-year-old students around the world and is administered by the Organization for Economic Cooperation and Development (OECD). In 2018, when the test was last administered, the U.S. placed 11th out of 79 countries in science. It did much worse in math, ranking 30th.

I work in Information Technology, a STEM field, alongside many folks with degrees not related to computer science. How does my colleague’s Biology degree help him write computer programs? It doesn’t. I have an advanced degree in Mathematics myself. It may make me a bit smarter and I would have been happy if you had helped me pay the cost, but it doesn’t help with my current job and I assure you my degree doesn’t benefit you in any way. Why would I ask you to pay for it?

My colleagues are smart people who have many college degrees and often years of relevant experience, but still it takes years to assimilate them to be productive in our system. Smart people with computer science degrees have skills for the job, but still need to be trained on our processes and procedures; they need to blend with the team; they need to learn how things get done in our environment.

In addition, throughout my career, I have seen many smart people who can’t get the job done because they can’t work with others. How do their college degrees benefit you and our society as a whole?

Further, 40% of students never finish college. Why should we pay for their failed experiments with college? https://www.thinkimpact.com/college-dropout-rates/. Free college means we will pay for even more such failures as more people who should not be in college seek an opportunity.

Do we also pay the tuition for foreign students who come here for an education and then go back home? How does that help us?

Still, I think we do indeed benefit in many instances. I am glad we have doctors and dentists to heal our ailments and engineers to build our cities, but do we need to discount college in order to have a system which makes this all work? If we have smart people with the drive to better their own lot and use their intelligence for the good of all, we will have the society we are looking for.

How Much Does Free College Cost?

Making college free will encourage more people, many who may not have the aptitude or maybe even the desire, to attend. After all, if you are offered something for free you often try it despite the fact it has no benefit to you. If it has benefit to you, you will find a way on your own.

What will happen if college is free or discounted? Either the dropout rate will be even more than 40% or colleges will accommodate more people by offering more useless degrees for taxpayers to pay for with money we don’t have. Maybe all of the above will be true.

Last month, Congress passed the “Inflation Reduction Act”, $740 billion of new spending (https://smartasset.com/financial-advisor/inflation-reduction-act). This spending is on top of the expensive American Rescue Plan ($1.9 trillion) and multiple COVID stimulus packages which helped add $6 trillion to the national debt in 2020 and 2021. It’s more money we don’t have.

https://usdebtclock.org/

The University of Pennsylvania’s Wharton School estimates student debt forgiveness cost at over $600 billion.

Wharton-Study-cost-605-billion-at-a-minimum

One concern from Republicans that could come to fruition is that the current plan modeled by Wharton shows that these are “static assumptions” and that there is the possibility because of increases in costs or other factors that forgiveness could top $1 trillion. 

Many are trying to pin down the exact cost, but the Biden Administration, of course, tells us there is no impact, no cost whatsoever.

However, Biden has said the plan would not impact the federal budget and would help those in the working class. 

Last month, Biden press secretary Karine Jean Pierre also told us the Inflation Reduction Act would also reduce the budget deficit:

Making sure that the tax code, is a little bit more fairer, so when you do that, when you put it in its totality, you will she — see — that it will, it will bring down, lower, the deficit, which will help fight inflation.

Do they protest too much? Are they trying to hide the obvious? Ms. Jean-Pierre said the U.S. has reduced the deficit by “an historic amount” in 2022. Yes, we added less to the debt this year than we added the last two, but we are still digging a deeper hole. The debt has not been reduced a penny. A smaller deficit this year does not mean spend more in attempt to catch up to the record deficits of the last two years. We forgive student because we have been a tad bit less irresponsible this year? The COVID “crisis” was justification for increased spending the last two years. Where is the crisis justifying this new spending? Their argument is pure sophistry.

The Iron Lady, former British PM, Margaret Thatcher had it right:

The US is currently in a recession (despite re-definitions to the contrary) along with high inflation (despite the fact that we had one month of no overall inflation–primarily due to falling gas prices). Spending more money, increasing the supply of money, lowers the value of money and the lower value of money leads to more inflation. The Federal Reserve is attempting to control inflation and avoid a deep recession by increasing interest rates, thereby lowering the demand for money.

Debt forgiveness provides additional stimulus and counters the Federal Reserve’s actions. This is basically what was done in 2020 and 2021 when handing out hundreds of millions of stimulus checks; many, like my own family, were not financially harmed by COVID, but we got three checks anyway. We are all paying the cost of too much money chasing too few goods.

https://www.cnbc.com/2022/08/24/bidens-student-loan-forgiveness-may-cost-taxpayers-prompt-inflation.html

We are on a delicate precipice currently. We could fall into stagflation or deeper recession. Still, President Biden can get a few more votes now and blame future problems he created on his opposition.

It’s Not Legal

This debt forgiveness should come from the legislature, not the executive.

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States; U.S. Constitution: Article I, Section 8, Clause 1

If anyone has standing, perhaps Congress, it should be challenged in court. Congress, not the president, has the power of the purse, yet the president, on his own, assumed a massive amount of government debt. The ability to appropriate funds was withheld from the president, but Biden is using this opportunity as a means of increasing his own power and limiting the power of the legislature.

Even House speaker Nancy Pelosi agreed recently on this point.

In July of 2021, House Speaker Nancy Pelosi said President Joe Biden does not have the executive authority to issue “debt forgiveness,” arguing that such action would be illegal and that it has “to be an act of Congress.”

“People think that the President of the United States has the power for debt forgiveness. He does not. He can postpone. He can delay. But he does not have that power. That has to be an act of Congress,” Pelosi said July 28 at a press conference.

So how does the president justify this action? By harking back to a law enacted in the aftermath of the 9/11 attack.

https://www.dailywire.com/news/biden-is-using-a-law-intended-for-9-11-heroes-to-legally-cancel-student-debt-its-pretty-convoluted

According to a legal memo sent to Secretary of Education Miguel Cardona on Tuesday, the Biden administration’s legal counsel claims that the “Higher Education Relief Opportunities for Students (‘HEROES’) Act of 2003 grants the Secretary authority that could be used to effectuate a program of targeted loan cancellation directed at addressing the financial harms of the COVID-19 pandemic.”

This is done even though virtually all COVID restrictions have been lifted and COVID is no longer the threat it was in 2020 and 2021. Even if COVID were a significant threat still, how does partially relieving student debt help students and their families combat COVID? The Trump administration used the HEROES act also, but only to delay payments during the COVID pandemic, not to relieve debt altogether. Speaker Pelosi echoed these points in her press conference last year.

Still, I received this comment from one who supports this idea:

Sure, it should come from the legislature, but the legislature, particularly the Senate, is deadlocked on damn near every issue these days. If anything is to be accomplished, it will be by the president.

Many people agree student debt forgiveness is a good idea. However, why justify such action through illegal means? The Constitution is designed to make change difficult, to force leaders to be deliberative, to ensure gridlock in most cases. We shouldn’t abandon principles when they are inconvenient. The president doesn’t have the authority.

The president goes beyond the rules in this instance, outside the scope of the Constitution. Once the precedent is set and not challenged, it is a problem. If we allow this exception, we allow any exception. What happens in a few years when a president you don’t agree with is in power and uses this precedent to fast track some other policy you don’t like? You will regret your concurrence at that point. Centralizing power in the executive for short-term gain is what Germany did in the early 1930s. Hitler later took advantage of that power.

It is a Right and Other Problems

Senator Sanders claims we all have a right to a college education. What right is he talking about? I agree a college application should indeed be considered and treated fairly. However, we do not need 100% or even 50% of workers with college degrees. This is the fallacy that is rarely challenged. Many people are just not suited for college or have no desire for it, and there are many jobs still that do not require a college education.

We need more with college degrees, so we can pay plumbers and electricians even more money to compensate for their college expenses? We need to improve our Wal-Mart experience and engage in a philosophy discussion with the greeter, the cashier, and all the other employees at the store?

There is something also about having skin in the game. People generally don’t care about costs assumed by someone else. If the recipient has no cost, the overall cost to the taxpayer rises because nobody within the system has incentive to control the cost. I failed as a Biology major, so let me try Spanish. If I fail there, I will try something else. Many more fritter their lives away at college until they are 30. Colleges love it because they grow and make more money. Kids love it because a good time will be had by all and they can further delay important life decisions. However, the rest of us are not better off. The rest of us will wonder why the cost continues to rise, the quality of education has declined, our kids never learn responsibility, and the meaning and value of a college degree is not what it used to be. In other words, we have more who shouldn’t be in college obtaining more worthless degrees, while the cost rises.

I incurred a sizeable student loan debt myself and I paid it off many years ago. I expect others to keep the commitments they made. After all, you incur debt now because you expect it will pay off in the long run. Further, hard work and adversity builds character. By eliminating the debt, you get the benefit now and the benefit later, unlike others who earned their way by dint of hard work. Furthermore, you shift the the cost from those who received the benefit to those who did not.

The more something is subsidized, the more the price increases. Do you know how much an MRI costs? Do you care? See if you provider even knows. Your insurance company pays, so you don’t shop around for the best price. The 2022 Inflation Reduction Act provided subsidies for electric cars, so Ford and GM raised the price of their electric vehicles by the amount of the subsidy. Health care costs for lasik eye surgery, hair transplants, and other cosmetic surgeries are dropping, counter to all other health care costs, because government does not subsidize these surgeries.

Colleges will benefit from government subsidies. It will allow more students to attend which in turn leads to more income for them. They then raise the cost because students doesn’t absorb the cost any longer, and the government is less likely to complain. In other words, they hide the true cost as medical practitioners do.

PPP

Liberal media noted some legislators who opposed student debt forgiveness also had had Paycheck Protection Program (PPP) loans forgiven. On the surface, it seems hypocritical, but we are comparing apples and oranges.

In 2020, the government forbade businesses from opening. Both employers and their employees could not earn money. The government provided PPP as a stopgap measure, so business owners would not fire employees and keep businesses viable during this crisis period.

Under the taking clause of the Fifth amendment, this is government’s responsibility. They forced people out of work, so they must provide just compensation. Further, money was not simply lining owners’ pockets. Owners paid their non-working employees so businesses would not close. Many businesses, especially those with younger employees, were not even at risk. Without government restrictions, hey would likely have opened and found ways to prevent COVID spread (the government’s policies to stop the spread were abysmal as I have covered extensively). PPP legislation was supported by those on both sides of the aisle; it helped prevent a deeper economic downturn. It was a necessary measure given the silly government lockdown policies. Student loan debt is not the same crisis by any measure.

Summary

Those with a college degree today will on average eventually earn more than those without. They are the best compensated among the work force. Why should those who have worked for a living since high school be required to pay the bills for those who had the benefit of a college education and will over their lifetimes make more money than those without a degree? The benefit is to individuals and families who already have more means than many others, and will likely have far more in the future.

The point of this debt forgiveness, coming three months before the next election, is to help Democrats with younger voters. I have empathy for folks saddled with debt, but helping them is not the real motivation.

Government intervention is the problem. Government has too much power. They use it for political interests (as was done in this instance) or they try to do good and fail. The long term trends here are: increased education costs and less value for a college degree. I work for the government myself and I see the problems every day. We the people need to return the sovereignty back to us where it was always intended to be.

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