After months of will-he-or-won’t-he suspense, President Biden has announced his executive actions on student debt. The administration plans to cancel up to $10,000 for borrowers currently earning up to $125,000 annually ($250,000 for married couples)—with the maximum forgiveness doubled for the students who, based on their parents’ finances, received Pell Grants when they attended college. Biden will also extend the pause on payments “for one final time” through the end of the year and allow those with undergraduate loans to cap their payments at 5 percent of their discretionary income, as opposed to 10 percent under current policy. Because the “cancellation” is really a transfer, the combined changes will cost taxpayers something like $500 billion—about $1,500 for every person in the United States.
Forgiving student debt may be a savvy way for Biden to appeal to young, left-leaning voters, but it’s indefensible as policy. Beyond the baseline question of whether the government should ever wipe out the willfully assumed debts of a preferred class of Americans at the expense of everyone else, the program is a poorly targeted use of taxpayer funds, rewards the dysfunctions of the higher-ed sector, and is likely illegal.
Yes, the limits placed on the program make it less of a bonanza for the upper-middle class than it could have been. The largest debt loads are typically held by those with advanced, not just undergraduate, degrees, so blanket forgiveness would have been a massive windfall for young lawyers. But the $125,000 income threshold doesn’t come close to targeting the most sympathetic cases: those who were preyed upon by low-quality colleges, often didn’t even earn a degree, and wound up working at the proverbial Starbucks. The median earnings for a U.S. female working full-time and year-round were about $50,000 in 2020; for a male, the number was roughly $60,000. Yet the White House set its cutoff for five-figure handouts at more than twice those amounts—and, citing numbers prepared by its own Department of Education, boasts that 87 percent of the debt relief announced yesterday will go to those earning less than $75,000 in individual income. Even that would be an odd threshold for taxpayer largesse, as it’s above the 2020 median household income and more than triple the 2022 Federal Poverty Level for a family of three. But rest assured: “only” about $65 billion will go to individuals earning even more than that by themselves, at a cost of $200 per U.S. resident.
Thanks to the income cap, this is not a handout to the rich—but it’s a handout to a lot of not particularly needy Americans: educated, young, with their peak earning years ahead, and oftentimes already well-off. Many of these individuals made deliberate, well-informed decisions to borrow money to attend college, and benefited from it.
Income levels aren’t the only measure by which the program doles out taxpayer funds irrationally. Those who didn’t attend college will still pay their taxes to support forgiveness for those who did. (Among Americans 25 and up, nearly four in ten have no college education.) Someone with business, mortgage, or car loans might carry just as much debt as a former college student and have taken it out for just as good a reason—but he will get no relief.
Even among those who did borrow money to attend college, the program won’t treat everyone equally. If one graduate focused on paying down his debt while another spent his money on other priorities, the second individual will receive subsidies for which the first is ineligible. Those old enough to be done paying down their debts, as well as those young enough not to have started borrowing yet, will lose out to those of just the right age to benefit.
And if the idea is that the U.S. higher education system is overpriced and that young people are taking out too much debt, one-time forgiveness does nothing to change that. To the contrary, it sends the message that taxpayers stand ready to inject money into the system when prices and borrowing get out of control. As my Manhattan Institute colleague Brian Riedl has pointed out, colleges have an unholy superpower of soaking up money intended to help students—they can simply raise prices when more aid becomes available.
Yet despite these price increases, college is not quite as expensive as many think. The “sticker prices” that colleges advertise are essentially fake, adjusted downward in a form of price discrimination called “financial aid.” Among those graduating with bachelor’s degrees, about one-third have no federal loans, and starting balances for the remainder average about $27,000. Meantime, Americans with bachelor’s degrees out-earn high school grads by the better part of a million dollars over the course of their lives, despite taking a few years off to study (and party).
Not all that income difference is an effect of college itself. People who go to college are selected for their intelligence, conscientiousness, and so on. But at minimum, this shows that there is no reason to target individuals with higher levels of education for special relief. Intelligent policymakers would fix higher ed’s price problem by reforming higher ed, not by subsidizing people who willingly borrowed money to attend and now earn household incomes up to $250,000.
Finally, the legal question: Does any provision of federal law give the executive branch the power essentially to rewrite the terms of the student-loan program? Certainly, no statute was ever intended to do that. (Those looking to drop down this particular rabbit hole can start with dueling memos from the Biden and Trump Education Departments.) It will be revealing to see how courts handle the textual issues here, as well as the question of who, if anyone, has “standing” to sue to block others’ debt forgiveness.
But barring an adverse court ruling, young Americans with student debt are now set to receive a five-figure handout. And everyone else is set to pay for it.
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