On Tuesday, President Biden announced his plan to forgive student loans for most borrowers making less than $125,000 a year, a total of $250,000 for a household. This plan was one of Biden’s key promises of his 2020 Presidential campaign, providing up to $20,000 in debt cancellation to Pell grant recipients and $10,000 to non-Pell grant recipients with borrowers from private institutions not benefiting from the plan. The White House estimated a total of 43 million borrowers to benefit from the relief.
With inflation at an unprecedented level in 20 years, recorded 8.5% in July, and with Feds announcing their plan to rally interest rates by 0.75 points, critics argue that the plan could add up to the inflation and create an unjust tax burden to those that have either paid or have not taken student loans in the first place. An analysis from Star Press estimates Biden’s plan to cost $350 billion. According to a Wharton Budget Model, the President’s plan would add up to $519 billion to the federal deficit, which trickles down in the form of higher taxes to the average taxpayer. The same analysis theorized that most of the debt forgiveness benefits borrowers in the top 60% of income distribution. As most of the beneficiaries of this plan are higher earners, it goes without saying that these high earners would not need any government bailout, with lower earners having to foot the bill in taxes.
Many Republican politicians and commentators argue that this plan is a political move by the President designed to galvanize the Democratic base ahead of the midterms. On his “Verdict with Ted Cruz” podcast, Senator Ted Cruz talked about the President’s plan, “If you are that slacker barista who wasted seven years in college studying completely useless things, now has loans and can’t get a job, Joe Biden just gave you 20 grand.”
Critics also worry that the plan will give colleges and universities a “free hand” in raising tuition and other costs as Brian Riedl, a senior fellow in Manhattan Institute, said, “Students will likely feel liberated to borrow more money on the assumption of future loan forgiveness, and universities will take advantage of the additional borrowing by raising tuition.”
The moral implications of such a policy have also sparked controversy as Harvard– educated attorney and conservative political commentator Ben Shapiro tweeted, “I have a controversial idea about paying off student loan debt: don’t take out debt you will likely be unable to pay off, and don’t ask others to pay off your debts.”
In functioning societies, personal responsibility is fostered and encouraged. When you take out debt, you are expected to pay for it.
Moreover, the debate over this plan brings about a national conversation about higher education financing in the United States. According to the White House, one third of borrowers do not have a degree. You might be wondering: Why would someone take debt to go to college and not get a degree? Is that not the whole point of college? As of July 2022, the U.S. The National Chamber of Commerce reported a total of 10.7 million job openings with only 5 million of them being filled. Most of these labor gaps include industries that require low-skilled labor such as manufacturing or wholesale. Instead of guiding high school graduates to pursue degrees incompatible with the demands of today’s job market resulting in a large amount of debt, incentivizing trades would be the right course of action.
