Biden’s loan forgiveness plan is making things worse

Biden aimed to help low-income college students in debt. Instead, he screwed every taxpayer in the country and gave colleges the greenlight to raise tuition skyhigh.

I have no doubt that most of us are already aware of the Biden Administration’s plan to cancel up to $10,000 of federal loan debt, $20,000 for those who accepted Pell grants. This is extremely beneficial for many of us — but is it a good policy?

If we are thinking about long-term implications, it seems clear the detriments will outweigh the benefits. This policy is inflationary at a time when inflation reduction is sorely needed, and it is a regressive transfer of wealth from the lower class to the middle class. Most importantly, it does nothing to countermand the ballooning cost of college attendance, and perhaps enables it to rise further.

This policy is inflationary because the post-pandemic inflation has largely been demand-driven, and loan forgiveness would increase aggregate demand. Excessive inflation hurts everyone — it devalues our savings and incomes, eroding our purchasing power. Inflation is also disproportionately damaging for the lower and middle classes, since the ultra-wealthy typically have much of their net worth tied up in assets, the values of which tend to increase commensurate with inflation.

Regardless of how the loan forgiveness is paid for, it is regressive. If it is financed with loans from the federal reserve, then it will contribute to inflation. Small amounts of inflation can be healthy, but according to the most recent CPI report we are at 8.5%, which is not a small amount. This is just about the worst timing possible for loan forgiveness, which has been estimated to cost upwards of $300 billion (although the White House refuses to give an estimate). If it is paid for by implementing some additional tax, then the new tax will almost certainly impact the lower and middle classes more — and it will certainly impact people who never attended college in the first place, or else loan forgiveness would be pointless in the first place.

In order to understand why this does not curb the rising cost of college tuition, we need to understand why these costs are rising so astronomically in the first place. In short, high demand, constrained supply, easy access to subsidies and incomplete access to information (about the true cost of college education as well as the expected return on investment) are among the most commonly-cited factors. Nullifying loans is great for the people who hold student debt right now, but it only incentivizes universities to further abuse the knowledge that the government will step in and cover whatever they believe students will be unable to pay. But what could be done to help address the college tuition crisis?

To reduce the cost of tuition, thereby eliminating the need for any debt forgiveness in the future, policy focused at reducing demand, increasing supply, limiting — or at least refraining from increasing — access to subsidies and providing better information to potential college-goers would be more appropriate.

Demand can be reduced by encouraging vocational training. Does every IT or cybersecurity professional really need a four-year degree? The National Cybersecurity Center doesn’t seem to think so, which is why they offer low-cost training and certification to help people break into the (rather high-paying) industry without a degree. By encouraging programs like this — through grants or less stringent licensing requirements — we can incentivize people to avoid taking out student loans in the first place. Increasing supply is a simple matter of streamlining the accreditation process to lower barriers to entry.

I understand that many college-goers are dependent upon federal loans, which is why I will not advocate for simply removing them overnight as that would be extremely costly for low-income students in particular, especially in the short term. However, raising the amount that the government is willing to provide or forgive does not line these students’ pockets so much as it lines the pockets of universities.

As for incomplete information, many students do not know how much loan relief they are likely to receive until they are already accepted to college. The Department of Education already has tools to help people more accurately assess how much college will cost them such as the Loan Simulator. Perhaps requiring that this tool is used before filling out the FAFSA form for the first time would provide people with a better idea of how much their degree is going to cost, and a rough estimate of expected salary based on degree would be relatively easy to find as well — all of the data is there.

I understand that none of these suggestions represent a “silver bullet” which could easily solve the problem. But they could help, which is why I’d rather see any one of these suggestions implemented than loan forgiveness. If there is a mechanism to do so, I think I’ll have to put my money where my mouth is and pay off my $12,000 in federal loans the hard way. Because although debt forgiveness is, no doubt, a tremendous relief to millions of people for the time being, it’s also dangerously short-sighted and loaded with negative side effects. We, members of the lucky 30 million on the receiving end, may feel only the benefits for now, but the consequences will come back to bite us — as they will all 330 million Americans.

Post Author: Dominic Cingoranelli