Biden’s White House announced today that they will be canceling tens of thousands in student loans in an effort to fulfill a campaign promise or something.
Via Roll Call:
The Biden administration announced Wednesday that it will cancel $10,000 in student loan debt for federal borrowers and $20,000 for Pell Grant recipients earning less than $125,000 a year.
The long-anticipated announcement, which President Joe Biden is expected to give remarks on later Wednesday, comes one week before the pandemic pause on student loan payments is scheduled to end. Biden is extending that pause through the end of the year, which will help all borrowers, not just those eligible for the debt forgiveness, but the administration is warning this is the final extension and borrowers should plan to resume payments in January.
The debt forgiveness is capped at $20,000 for Pell Grant recipients and $10,000 for the other 40 percent of federal borrowers. To qualify, individuals must have earned less than $125,000 and households less than $250,000 in either the 2020 or 2021 tax years, according to senior administration officials who described the details of the plan in a background call with reporters.
The relief is estimated to benefit 43 million federal student loan borrowers, 20 million of whom will have their debt completely canceled, the officials said. Current college students are eligible for the relief, with dependents’ eligibility based on their parents’ income.
Here’s the estimates on how much the $10k part of it will cost…
A Penn Wharton Budget Model analysis released Tuesday ahead of the official announcement confirmed the top 5 percent of earners won’t see any debt relief. But the model estimates between 69 and 73 percent of the debt forgiveness will go to households in the top 60 percent of the income distribution.
One-time debt forgiveness of $10,000 for borrowers earning less than $125,000 per year will cost $330 billion over the 10-year budget window, Penn Wharton’s model estimates.
The Committee for a Responsible Federal Budget also issued an estimate ahead of Biden’s announcement that pegged the cost of canceling $10,000 in student loan debt for households earning less than $300,000 at roughly $230 billion.
Since they came before the official announcement, the Penn Wharton and CRFB estimates did not factor in $20,000 in debt relief for Pell Grant recipients.
If just $10k in relief for borrowers will cost upwards of $300 billion, you can bet the $20k for Pell grant recipients will more than double that number. A lot of students qualify for Pell grants.
A former Obama economic advisor slammed Biden’s plan today as reckless, suggesting that it’s like pouring gas on the inflationary fire that’s already burning:
Pouring roughly half trillion dollars of gasoline on the inflationary fire that is already burning is reckless. Doing it while going well beyond one campaign promise ($10K of student loan relief) and breaking another (all proposals paid for) is even worse.
— Jason Furman (@jasonfurman) August 24, 2022
The White House fact sheet has sympathetic examples about a construction worker making $38K and a married nurse making $77,000 a year.
But then why design a policy that would provide up to $40,000 to a married couple making $249,000? Why include law and business school students? pic.twitter.com/463YMmCT9g
— Jason Furman (@jasonfurman) August 24, 2022
You can't use one baseline (interest payments suspended) to argue this will constrain demand & then a different baseline (interest payments restored) to describe the benefits. That is incoherent, inconsistent & indefensible cherry picking–I hope the White House doesn't do it.
— Jason Furman (@jasonfurman) August 24, 2022
Most importantly, everyone else will pay for this either in the form of higher inflation or in higher taxes or lower benefits in the future. I did a thread on this last night but given the new announcement you need to double everything in it. https://t.co/CJ7aPYyAw3
— Jason Furman (@jasonfurman) August 24, 2022
And therein lies the problem. This is nothing more than a redistribution of wealth scheme just like Obamacare, where taxpayers are going to be saddled with the heavy cost of Biden’s bribe to get votes from college students. Not to mention all the inflationary costs that will come from this.
It’s no coincidence that Biden is announcing this ahead of the 2022 elections. He’s obviously expecting that Democrats will benefit from votes from these college students in November.
Furman further points out that this may not be legal:
Finally, it's not obvious to me that this is reasonable for a President to do unilaterally. A number of lawyers (and political leaders) have argued inconsistent with the law. Even if technically legal I don't like this amount of unilateral Presidential power.
— Jason Furman (@jasonfurman) August 24, 2022
I’m sure that as soon as this policy is in force, Furman’s theory that it may not be legal will be quickly tested in the courts. I hope it is, but I fear the activist courts will claim it’s legal and allow it to continue unabated until it gets to a true constitutional court.