Borrowers with fancy degrees get bailed out by taxpayers under Democrats’ student-loan proposals

Borrowers with fancy degrees get bailed out by taxpayers under Democrats’ student-loan proposals
Bryn Mawr (Image: Bryn Mawr College)

Democrats are pushing Biden to suspend student loan payments all the way through this year’s midterm elections, reports the Washington Examiner. He is likely to do so, says Time Magazine. Other progressive politicians are pushing Biden to cancel student loans entirely.
This push for a student loan bailout would benefit the “wealthy, credentialed class,” the Examiner notes:

Democrats claim that student loan forgiveness helps the working class…But the biggest winners of student debt forgiveness are actually the wealthiest income earners. According to data compiled by the Brookings Institution, the top 40% of income earners owe over two-thirds of all student debt, and the richest 20% owe 35%. These are all the wealthy doctors and lawyers who borrowed hundreds of thousands of dollars for multiple credentials, but now also are making hundreds of thousands of dollars a year.

The Examiner suspects the Democratic Party is bailing out these high-paid people with fancy degrees because of how they vote.

“In 2020, the Democratic Party overwhelmingly won the top 10 highest-income congressional districts in the country,” it notes. “Wealthy, credentialed members of the elite, such as doctors, lawyers, consultants, and other professionals, also give far more money to the Democratic Party than they do to Republicans.”

“A good chunk of the money that Biden does give to this wealthy, credentialed class will find its way right back into the Senate and House campaigns of Democrats,” the Examiner notes.

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“Democrats may say they are against policies that raise income inequality, but that is exactly what student loan payment suspensions do every month. They let the highest-income earners keep more of their paycheck instead of paying off the debts they agreed to pay.”

Similar findings were made by professors at the University of Pennsylvania’s Wharton School of Business: student loan forgiveneness forces the poor and middle class to subsidize the wealthy:

partial or full student loan forgiveness is “regressive,” according to a recent working paper, titled “The Distributional Effects of Student Loan Forgiveness,” by Wharton finance professor Sylvain Catherine and Constantine Yannelis, professor of finance at the University of Chicago’s Booth School of Business. The paper’s findings are being actively discussed on Twitter.

“Any policy that is a universal loan forgiveness policy or a capped forgiveness policy — say forgiving debt up to $50,000 — is going to give most of the dollars in forgiveness to upper-income individuals,” said Yannelis….forgiveness would benefit wealthier borrowers more than low- and middle-income borrowers…because “high earners took larger loans…”

The Biden administration has already effectively written off many billions of dollars in student loan debt by imposing moratoriums on repayment during the coronavirus pandemic (even for borrowers perfectly capable of repaying their student loans, at a time of very low unemployment, when it is easy for recent college graduates to find a job).

And it is almost certain to effectively write off billions more in student loans by adopting income-driven repayment plans that let people devote such a small percentage of their income toward repaying their loans that much of their loan balance is never, ever repaid. These bailouts-in-all-but-name disproportionately benefit people with high incomes over the course of their life.

Under existing income-based repayment plans, people who work for the government are allowed to only make modest payments on their student loans for ten years (unlike people who work in the for-profit sector, who have to make payments on their loans for 20 years). This results in taxpayers effectively writing off the student loans for many government employees, at great cost. Biden wants to expand such programs, at additional cost to taxpayers.

LU Staff

LU Staff

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