Last July, House Speaker Nancy Pelosi said President Joe Biden “does not [have] the authority” to forgive student loans. Biden himself acknowledged that he doesn’t “have the authority to do it.” Nevertheless, Pelosi and other Democrats were quick to praise the President’s move to forgive $10,000 in student loan debt for many Americans, saying it will help working families’ livelihoods.
There’s only one problem: this won’t help the working class—it will set them back for years.
Biden’s student loan forgiveness plan is a blatant redistribution of wealth from lower-income earners to college-educated individuals. The Penn Wharton Budget Model estimates the plan may cost taxpayers up to $1 trillion, a price that is set to disproportionately affect working families and benefit six-figure earners. The same estimate notes that approximately 70 percent of the debt forgiveness would be designated to the top 60 percent of earners.
What’s more is that this aid would go directly to the highest threshold of earners compared to the lowest threshold, since higher-income Americans are more likely to borrow for college than lower-income earners. In fact, a 2016 analysis found that students from high-income households borrowed the largest amounts of student loans, even when they were just as likely as low-income households to assume student loans during their first year in an undergraduate program.
This means that Biden’s plan, which claims to “provide more breathing room for working class families,” will burden lower-income workers—many of whom have already paid their student loans—to pay for middle-and-upper class Americans who assumed significant student loan debt and have not paid them off.
Even if Biden’s loan lunacy of canceling $10,000 in debt for many Americans goes as planned, estimations say the amount of outstanding debt will return to the current level in just four years.
Worst of all, the price of college tuition has nearly doubled in just 30 years for private colleges and is even higher for public institutions at 118 percent. Despite research showing that government-subsidized aid supercharges college price inflation, colleges have consistently responded to an increase in student loan limits by increasing their rates because colleges absorb the cost increase. For instance, the Federal Reserve Bank of New York found that for every dollar increase in subsidized loans, universities raise their overall prices by 60 cents.
The White House’s fact sheet amusingly noted that colleges “have an obligation to keep prices reasonable and ensure borrowers get value for their investments, not debt they cannot afford.” Regardless of the White House’s warning, institutions across the country will only capitalize on President Biden’s outrageous plan by raising tuition further to cover for the unjustifiable mess that he has created.
For over 30 years, institutional powerhouses and government agencies have systematically covered their tracks to make the federal student loan program seem profitable when, in reality, were requiring massive cash infusions to keep the program afloat. During this time, parents have been caught in debt traps after loans are made “without regard to the ability of borrowers to repay and have fewer protections when they can’t.”
Instead of addressing the principal-agent problem to fix such a broken system, President Biden has single handedly shifted the financial damages from academic institutions to responsible taxpayers without reason. The financial responsibility of seeking a higher education should not be put on the shoulders of the working class but instead should hold colleges liable for arbitrary price increases.
Biden’s mass cancellation has set an extremely dangerous precedent. Those who will foot the bill are those who either did not go to college, chose a more financially viable institution or repaid their debt. This reckless initiative is nothing more than a radical kicking the can down the road from a tax-and-spend Democrat who claims to be “fiscally responsible.”
It’s time to hold exploitative institutions accountable and fix a completely broken system to allow eager students to pursue their academic dreams without financial retribution.