President Biden’s plan to forgive up to $20,000 in student loans per borrower is bad policy for many reasons. This adds nearly $1 trillion to the national debt. It fuels inflation. And this is an illegal overreach of the executive. (The Job Creators Network Foundation’s Legal Action Fund is currently considering legal options to block it.)
The bailout is also fundamentally unfair to most Americans who never earned an associate’s or bachelor’s degree. These hard-working people are forced to meet the loan forgiveness for the consultant class through their taxes. Biden’s action therefore creates a particularly depressing Labor Day for ordinary workers who also face falling real wages and living standards due to historic inflation.
Over Labor Day weekend, the media targeted these everyday workers with a heavy dose of pro-union messaging, championing the supposedly triumphant return of the labor movement that is still on our doorstep. They ignored how far more unfair student loan forgiveness is to workers than the alleged remaining labor abuses. The inequality-inducing wealth transfer of the bailout from ordinary workers to higher-income households should enrage supposedly pro-worker politicians, union bosses and journalists who have seemingly placed partisanship above their ideals.
More generally, the student loan bailout does not address the underlying reason why so many Americans have crippling student debt in the first place. Between 2008-09 and 2020-21, tuition fees increased by 54% (26%, adjusted for inflation). Some intermediate private universities, such as Kenyon College in Ohio, Skidmore College in New York, and Bates College in Maine, costs now more than $80,000 a year to attend.
The bailout does nothing to reverse those runaway college costs, keeping higher education off limits for many blue-collar families. As a result, the nonpartisan Committee for a Responsible Federal Budget concludes that college debt levels will return to current levels within five years.
Even some prominent Democrats concede this point. Sen. Catherine Cortez Masto (D-Nev.) said the action “does not address the fundamental issues that make college unaffordable.” Sen. Micahel Bennet (D-Colo.) said, “One-time debt cancellation does not solve the underlying problem. And the Wall Street Journal quotes a Democratic House member saying his colleagues are “frustrated that this doesn’t actually solve the tuition problem.”
Unfortunately, government action that simply attacks the effect of a problem, rather than its cause, is common practice. By only managing the symptoms, policy makers allow the underlying disease to worsen, exacerbating the problems they are trying to address.
Nowhere is this dynamic more apparent than in labor politics, whose activism filled the editorial pages of most major newspapers over the weekend. Major labor policy proposals from Democrats, such as a $15 federal minimum wage, cutting freelance contracts and requiring unionization through policies like card checking, attempt to address the perceived inadequacy of wages and benefits in the workplace.
Yet they ignore the underlying reasons for this problem. These include reckless spending that fuels inflation and reduces real wages, a lack of technical skills among workers, overtaxation and excessive regulation, the costs of which are partly paid in terms of reduced employee compensation. The authoritarian policies of the Democrats to try to deal with the consequences of these problems would only exacerbate them by reducing economic opportunity.
The recently passed Inflation Reduction Act (IRA) also includes examples of this phenomenon. Consider the $7,500 grant extension for electric vehicle purchases. These taxpayer funds are intended to make these “green” cars and trucks more affordable. But in reality, they simply allow automakers to raise their prices. See how Ford and GM recently raised their list prices on some electric vehicles by about this subsidy amount. This provision of the IRA therefore effectively subsidizes the profits of car manufacturers. The action does nothing to actually reduce the costs of electric vehicles to make them more accessible.
Same story with the $64 billion in taxpayer funds from the IRA to extend ObamaCare’s expanded grants. History shows that health insurers will use these funds to further increase premiums. Indeed, some health insurers have already announced that they will increase ObamaCare premiums by about 20% next year. These subsidies will not address the underlying reasons for the crisis in health care and coverage costs, but rather exacerbate it by helping health insurers charge even more.
The only way to solve the biggest problems in American society — including declining real incomes and the unaffordability of education and health care — is through economic, not political, solutions. This means that the government should do less, not more, and allow the free market to work.
For example, to meaningfully address the exorbitant costs of college education, the government should reduce its presence in the student loan market. This would force colleges to cut costs and improve quality to attract students. Colleges would redirect the costs of worthless curriculum, administrative burden, five-star amenities, and part of their $691 billion collective endowment to lower tuition and make colleges more affordable.
Unfortunately, Biden’s plan to pour more money into this problem by bailing out student loans will only make matters worse. He treats workers across the country who have chosen tough jobs over fancy degrees like idiots on Labor Day.
Alfredo Ortiz is President and CEO of Job Creators Network.