Editorial: 4 concerns about the student loan plan | Opinion


JHere are four main issues with President Joe Biden’s executive order that forgives some of the country’s student loan debt: its constitutionality, its moral hazard, its cost, and the limited extent of its benefits in comparison.

Nothing like a person wondering if this is a good plan, right?

It’s not a good plan. It’s a plan that means good. It puts a band-aid on fundamental problems that it does not solve.

Biden’s promise is to forgive up to $10,000 in federal student loans for those who still owe money (and up to $20,000 for those who qualified for a Pell grant as students undergraduate, meaning they had a higher degree of financial need at the time). It also promotes racial justice, since black Americans on average have more student debt – and longer – than white Americans.

There is probably an electoral calculation. A recent essay on how Democrats can be more competitive, published in the New York Times, explains the call. “Giving even a minority of Americans something that upsets them, changes their lives forever, and gets them talking about nothing else to every indecisive person within earshot can be worth five cut inflation laws,” writes Anand Giridharadas, author of “The Persuaders”. : On the front lines of the fight for hearts, minds and democracy.

The administration is moving forward, having begun a soft launch of the aid request process last week, even as lawsuits threatened to entangle the effort. To the extent that relief would change the lives of recipients — which we do not deny it could do for those individuals and their families — how could we oppose it?

Let’s go through the problems mentioned at the beginning.

The process

Simply put, the president cannot spend money that is not authorized by Congress. The Biden administration is relying on an interpretation of the 2003 Higher Education Support Opportunities for Students Act. Various groups have asked the court to block implementation, and on Friday the Eighth Circuit Court of Appeals temporarily halted the plan.

Regardless of how the court cases play out, Biden’s unilateral exercise of power over the wallet is concerning. The 2003 law was intended to enable the government to respond to emergencies. Are we one? The closest case that can be presented is the pandemic-related pause in student loan repayments, and that ends on December 31.

Increasingly, the urgency underlying the executive branch’s actions — not just Biden’s — has been to counter congressional inertia in a divided nation. Stagnant policymaking is certainly a problem, but one that should remain subject to first principles scrutiny.

Moral hazard

According to US News & World Report, growth in tuition and fees at what it terms “national universities” ranges from 134% over the past 20 years at private schools to 175% for college students. state in public schools. This far exceeds general inflation. And according to a study published by McKinsey and Co., each promotion has more debt than the previous promotion.

Biden’s plan will not alleviate those pressures. Instead, schools will have little incentive to control costs and students will have little incentive to maximize value if they know that future loan forgiveness is conceivable.

Moreover, the waiving of future financial obligations and the resulting boost in personal confidence makes Biden’s decision at least somewhat inflationary at a time when that is especially unnecessary. Since inflation tends to be fought with higher interest rates, new loans will be more expensive.

Cost estimates that solidify

The Congressional Budget Office estimates the plan will cost about $400 billion over 30 years, adding to the deficit. The National Taxpayers Union — which, it should be noted, opposes “the heavy hand of government” in general — says the average burden per taxpayer over time will be around $2,500, weighted toward higher income levels.

The White House has yet to release an official estimate, but officials there believe the pardon will cost less than others are anticipating because not everyone eligible will accept Biden’s offer.

It’s not a good sign when the porosity of a financial aid package is touted as a measure of its acceptability.

The extent of its benefits

About a third of borrowers will see full cancellation of their student loan debt under Biden’s plan. The forgiveness only applies to federal loans, but 92% of student loans are.

That said, only 1 in 7 Americans have student debt, according to census data. Also, the most indebted people are those with college and professional degrees who should be able to support the repayment.

The Star Tribune editorial board has in the past reviewed intriguing targeted student debt relief proposals. But Biden’s action is broad. A burden to many for the benefit of some can sometimes have rewarding ripple effects. We are not convinced that such a balance is present here.

It is not fair that the costs of higher education have become so onerous in just one generation. Nor is it fair that people who have been unable or unwilling to repay their loans get a reward that those who have kept their commitment will not get.

Besides, it’s unfair that today’s students are going back into debt – armed now with the hint, but not the certainty, that there will one day be a rescue team for them.

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