“Federal budget deficit forecast jumps $400 billion, fueled by student debt forgiveness,” reports Reason Magazine.
“In 2024, the federal budget deficit is estimated to reach nearly $2 trillion, according to new projections released by the Congressional Budget Office (CBO) this week. In February, the agency predicted that the deficit would only be $1.58 trillion. However, spending increases have caused the projected deficit to increase by $400 billion, a staggering 27 percent hike. According to the CBO, 80 percent of the spike in the deficit can be blamed on four sources of government spending. The largest source, responsible for $145 billion of the increase, is changes to the federal student loan program that have resulted in massive waves of federal student loan forgiveness and increased forgiveness going forward.”
$60 billion of the increase is due to recent legislation passed under Joe Biden. $50 billion of the increase is due to higher-than-expected Medicaid costs.
“The long-term outlook for the budget deficit has increased too. In February, the CBO estimated that in 2034, the deficit would climb to $2.5 trillion. Its latest estimate now places that number as over $2.8 trillion….If the deficit continues to increase as the CBO predicts, the outcome could be disastrous.”
“As debt grows unabated, there is the risk of a sudden loss of confidence in bond markets, with investors demanding much higher interest rates that could trigger a debt doom loop and broader fiscal crisis,” say Cato Institute researchers Romina Boccia and Dominik Lett. “Congress and the Biden administration should cut spending now while the economy is growing and conditions are favorable for deficit reduction, alleviating pressure on interest rates and the federal debt to grow, and before a fiscal crisis forces their hands.”
The combined cost of Biden’s student loan forgiveness, and his administration’s changes to income-driven repayment plans, could eventually top $1 trillion.
After the Supreme Court ruled that Biden’s attempt to cancel $500 billion in student loan debt was illegal, Biden canceled some of the same debt using new excuses, writing off billions more in student loans. In April, 17 states sued the Biden administration over its new plans to cancel student loans, arguing that Biden’s new plan was illegal, too.
Canceling student loans is a bad idea. It encourages colleges to jack up 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 raising 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.
Canceling student loan debt is “regressive and unfair,” says Katherine Abraham, a former adviser to Obama who served as Commissioner of the Bureau of Labor Statistics during the Clinton administration. As Greg Price points out, “Only 37% of Americans have a 4-yr college degree, only 13% have graduate degrees, and a full 56% of student loan debt is held by people who went to grad school. Biden’s plan to cancel it would be like taking money from a plumber to pay the debt of a lawyer.” Even the liberal Washington Post called Biden’s student-loan bailout “a regressive, expensive mistake.”
Student loan forgiveness also is inflationary. Jason Furman, chairman of President Obama’s Council of Economic Advisers, called Biden’s plan to cancel student loans “reckless.” Furman said, “Pouring roughly half trillion dollars of gasoline on the inflationary fire that is already burning is reckless.” Biden’s student loan forgiveness will increase inflation, inequality, tuition, and the national debt.
The Wall Street Journal criticized Biden’s new plan to write off student loans after the Supreme Court ruled against his old plan, arguing that the new plan “will encourage colleges to raise costs, especially in graduate programs for which there are no federal loan limits. Who cares if students can’t repay? They will be forgiven one way or another.”
The Supreme Court’s 2023 ruling against Biden’s earlier loan-forgiveness plan was expected by most observers. Some of them accused Biden of currying favor with young voters by promising student loan forgiveness that he knew was illegal and would be struck down, thus giving them false hope. Biden sought to deny this, saying “I didn’t give any false hope. The Republicans snatched away the hope that they were given.”
But that was dishonest on Biden’s part. Earlier, he himself had admitted he lacked the power to forgive student loans en masse. The president said of student loan cancellation during a 2021 CNN town hall, “I don’t think I have the authority to do it by signing with a pen.”
Other Democratic Party leaders used to admit that Biden lacks the power to forgive student loans, the very ones denouncing today’s Supreme Court decision. On July 28, 2021, “then-Speaker of the House Nancy Pelosi explained: ‘People think that the President of the United States has the power for debt forgiveness. He does not. He can postpone. He can delay. But he does not have that power. That has to be an act of Congress.”
As journalist Charles Cooke noted in 2023, “Biden knew this was illegal. Everyone knew this was illegal. That he tried to do it anyway, in violation of his oath of office, remains a monumental disgrace.”
President Biden’s policies caused inflation, according to even Democratic economists like Harvard’s Larry Summers — who was Treasury Secretary under President Clinton — and Obama economic advisor Steven Rattner. As Rattner noted in the New York Times, Biden has spent “an unprecedented amount” of taxpayer money, which resulted in “too much money chasing too few goods.”
