Joe the plumber is being asked to pay for someone else's college tuition...

Student loan forgiveness would be a bailout for elites

by Washington Examiner, | 

 

 | November 18, 2020 12:00 AM

Voters sent a clear signal in this election that while they are ready to move on from President Trump, they are wary of giving Democrats the power to impose a sweeping left-wing agenda. 

In a best-case scenario for Democrats, the Biden administration will start with a smaller Democratic majority in the House and a 50-50 Senate. If Republicans can win just one of the two Georgia Senate runoff races, Democrats will be stuck in the minority in the upper chamber.

Preparing for that possibility, Senate Minority Leader Chuck Schumer is urging President-elect Joe Biden to bypass Congress to wipe away student loan debt. “I have a proposal with Elizabeth Warren that the first $50,000 of debt be vanquished, and we believe that Joe Biden can do that with the pen as opposed to legislation,” Schumer said. 

In the proposal that Schumer released with Warren in the fall, the two Democrats tried to use the coronavirus pandemic as an excuse to breathe new life into a proposal that Warren advanced during her failed presidential bid.

Having the president wipe away a substantial portion of the $1.7 trillion in student loan debt without an act of Congress would immediately trigger significant constitutional challenges. It would also be quite the spectacle, after years of blasting Trump for executive overreach and calling for more bipartisanship, if Biden came right out of the gate with such an extraordinary power grab.

But beyond these issues, it would be terrible policy.

Student loans are an undeniable burden on young borrowers, but they also represent obligations that they took on because they wanted to obtain something of value. 

Forgiving student loans with such a broad stroke would create tremendous moral hazard. Individuals who scrimped for years, forgoing dinners with friends and vacations and fancy phones to pay off their student loans, would effectively feel ripped off knowing that had they only been more profligate, the federal government would have wiped away all of their debt. Those who were much less careful about their spending patterns, on the other hand, would feel vindicated.

If a president could wipe away debt with a stroke of a pen, Biden would not be the last president to do so. Those taking out debt in the future would be sent the signal that if they simply hold out long enough, they can avoid repaying the money.

In addition, it would, in effect, mean a huge injection into the higher education racket that would encourage colleges and universities to raise tuition even higher. Many studies have shown that the increase in federally subsidized student loans explains much of the extraordinary tuition increases we’ve seen in recent decades. If loans are forgiven, it will increase demand for new loans and thus provide an opening for further tuition hikes.

On top of this, for a Democratic Party that likes to present itself as the party of the worker, it would be a tremendous wealth transfer to the elites. College graduates tend to come from wealthier families and tend to be more well off and connected. A recent Brookings Institution analysis of Federal Reserve data found: “The highest-income 40% of households (those with incomes above $74,000) owe almost 60% of the outstanding education debt and make almost three-quarters of the payments. The lowest-income 40% of households hold just under 20 percent of the outstanding debt and make only 10% of the payments.”

It would be reckless and misguided for Biden to kick off his presidency by disregarding Congress to orchestrate a massive bailout for the elites.