On November 22, the Biden administration declared that it is extending the “pause” on student-debt payments yet again — this time through August 29 or until the lawsuits challenging Biden’s $500 billion student loan forgiveness are disposed of. This will cost taxpayers over $30 billion more. The New York Post reports:
Implemented at the start of the COVID-19 pandemic amid tremendous economic disruption, the pause allows borrowers to skip their student-loan payments, and it outright forgives the interest owed while it’s in place.
This was supposed to be a very short-term measure, enacted in March 2020 when people’s jobs were locked down and many Americans couldn’t pay their bills. Yet years later, after almost all the other “emergency” programs have been allowed to expire, the president is extending the “pause” again — even though the economic disruption facing college grads has long since faded.
College graduates’ unemployment rate is down to less than 2%, meaning they’ve fully recovered from the pandemic’s effects. So they clearly don’t need a further vacation from their financial responsibilities. But the “pause” is worse than unnecessary. It costs taxpayers billions a month and is actually deeply regressive, mostly benefiting the elite, especially those with advanced degrees.
The biggest beneficiaries of extending the pause will be doctors, lawyers and people with graduate degrees, according to the nonpartisan Committee for a Responsible Federal Budget. That’s certainly who has profited so far.
CRFB’s experts estimate that between the waived interest payments and the debt-eroding effects of inflation, by the end of the year doctors will have received an average of $68,000 in total debt forgiveness from the pause. Lawyers will have collected a tidy $41,500, with master’s degree-holders getting around $18,500.
Apparently that wasn’t enough: Biden decided these struggling classes of Americans were in desperate need of more taxpayer-funded relief.
This move really is almost exclusively helping the well-off. All told, more than “three-quarters of the benefit of the pause goes to the top half” of earners, CRFB says. On the other hand, your average waiter, trucker and Uber driver — who didn’t go to college — will get exactly $0 in benefits. Yet they’ll still be on the hook for the tens of billions this extension will cost us taxpayers, of course.
That’s right: At a time inflation is already costing families thousands and leaving hardworking Americans struggling to make ends meet, Biden is putting them on the hook for billions more to comfort an affluent, highly educated slice of America’s elite.
Suspending student loan repayments encourages colleges to raise tuition, by making it more attractive to take out big loans to cover college tuition. When students are willing to borrow more to go to college, colleges respond by increasing tuition. The Daily Caller notes that “each additional dollar in government financial aid translated to a tuition hike of about 65 cents,” according to the Federal Reserve Bank of New York.
Biden’s suspension of student loan repayments bothers not just conservatives, but even liberal economists. Former Harvard president Larry Summers, who was Treasury Secretary in the Clinton administration, calls suspending student loan payments the “worst idea” because it transfers wealth to “highly paid surgeons, lawyers and investment bankers.”
Inflation and inequality are getting worse due to the suspension, says Matthew Yglesias, who co-founded the progressive website Vox. In the Washington Post, Yglesias notes that the long pause in student loan payments since 2020 has disproportionately benefited the wealthy, at the expense of taxpayers who mostly don’t have college degrees. Yglesias also notes that Biden’s suspension of student loan repayments will drive up the inflation rate:
“Most Americans say the most important problem facing the country is inflation — and President Joe Biden just made it worse. His administration announced last week it would extend yet again the emergency suspension of student loan repayments, even as his frenemies on the left are urging a program of complete forgiveness of all student debt.”
Rapid inflation is already occurring due to massive government spending, he says, and suspending student loan repayments makes matters worse:
“[Biden’s $1.8 trillion stimulus package] supercharged demand in 2021…putting inflationary pressure on the economy. ….So to the extent that it’s possible to reduce inflation by directly curtailing consumption, that can be helpful. And the most progressive approach is to curtail the consumption of the affluent….Non-collection of student loans, meanwhile, has the opposite effect…restarting loan payments would drain some demand out of the economy, and would do so by disproportionately targeting those most able to pay….Restarting student debt collections would restrain inflation at the expense of a disproportionately high-income minority of the population. Broad debt cancellation, by contrast, would boost inflation.”
In addition to suspending student loan repayments, Biden has also attempted to forgive $10,000 or $20,000 in student loan debt for many borrowers, at a cost to taxpayers of $500 billion. That $500 billion student loan forgiveness has been declared illegal by a judge in Texas, and also was temporarily blocked by the 8th Circuit Court of Appeals. But the Biden administration has appealed these rulings, asking the Supreme Court and the Fifth Circuit Court of Appeals to reinstate the student loan forgiveness plan.
In addition to that $500 billion student loan bailout, Biden also is changing income-driven repayment plans in ways that will spur colleges to raise tuition and stick taxpayers with the tab. Biden’s changes “will make college much more expensive” for taxpayers and many students, reports Reason Magazine.
Between the student loan bailout and Biden’s changes to income-driven repayment plans, the overall cost of Biden’s plan could be over a trillion dollars, according to analysts at the University of Pennsylvania’s Wharton School, taking into account changes made by Biden to income-driven repayment plans.
Thomas Berry of the Cato Institute says Biden’s $500 billion student loan bailout is illegal. Other observers have said that Biden’s plan is illegal. As the College Fix notes, “An analysis from the Texas Public Policy Foundation concluded that an executive order bailout is likely illegal. Alan Dershowitz, professor emeritus at Harvard Law school, has also said that a student bailout through executive action would be illegal.”
Jason Furman, chairman of President Obama’s Council of Economic Advisers, calls Biden’s plan “reckless.” Furman says, “Pouring roughly a half-trillion dollars of gasoline on the inflationary fire that is already burning is reckless.” Biden’s plan will increase economic inequality and the national debt.
Even the liberal Washington Post calls Biden’s student-loan bailout “a regressive, expensive mistake.”