Cancelling student loan debt is a recipe for disaster
Is President Biden thinking of cancelling student loan debt? Congressional Democrats have high hopes for May 1. If President Biden heeds their advice, that would be the day he extends the student loan payment moratorium set to expire.
Of course, that isn’t enough for progressive pols. In a letter Thursday, nearly 100 lawmakers called on Biden to “provide meaningful student debt cancellation.” The sum of $50,000 per borrower has been proposed.
That’s been the Democratic drumbeat — knock out a sizable chunk of the $1.7 trillion in student loan debt and free the fiscally burdened to be able to buy homes, start families — and vote Democrat.
The letter was led by Senate Majority Leader Chuck Schumer, D-N.Y., joined by our own Sen. Elizabeth Warren, Rep. Ayanna Pressley and scores of others. A statement from Schumer’s office noted that “most borrowers are not financially prepared to shoulder another bill as they face skyrocketing costs for necessities like food and gas.”
This is especially rich, as the Democrats’ profligate spending helped fuel the inflation spike.
“Canceling student debt is one of the most powerful ways to address racial and economic equity issues. The student loan system mirrors many of the inequalities that plague American society and widens the racial wealth gap,” wrote the lawmakers. “Student debt cancellation must be one of the key actions in your comprehensive approach to advance equity as our nation works to rebuild a stronger and more equitable economy.”
Taking out student loans, getting a college education and then not having to pay would be a great gift to graduates. By ridding themselves of loan payments, they could save hundreds every month.
It would also be a windfall if people who took out mortgages, car loans and who carry credit card debt could walk away from payments without consequences — the cash freed up could pay for many quality-of-life upgrades.
But that’s not on the table — adults who assume debt are supposed to be responsible and pay for the things they purchase.
While lawmakers paint the cancelling of student loan payments as a win-win, the move is anything but.
As the Hill reported, cancelling $10,000 per borrower would cost the federal government around $3.73 billion, while the estimated price of eliminating $50,000 per borrower would tally near $1 trillion.
No matter what amount is cancelled, the government stands to take a loss as federal student loans would cost not only the remaining principal balance but the interest that was expected on all future payments.
A 2019 Moody’s analysis estimated loan cancellation could result in $86 billion in lost revenue from student loan principle, interest and fees.
A report from the Urban Institute also notes cancelling student loan debt would gradually increase the national debt.
What the lawmakers pushing for debt cancellation have missed is that this lost revenue will have consequences for future budgets. An analysis by Brookings Institution fellow Adam Looney found that any diversion of dollars could take away from vital social programs and create higher taxes in the future.
“There are real trade-offs in terms of — in a sense of, there is a budget, and so the more you spend on one program, the less you have available to spend on other programs,” Looney told Changing America.
Cancelling student debt is a great way to appeal to the youth demographic so key to Democratic victories, but the costs, born by the rest of us, are just too high.
Congressional Democrats have high hopes for May 1. If President Biden heeds their advice, that would be the day he extends the student loan payment moratorium set to expire.
Of course, that isn’t enough for progressive pols. In a letter Thursday, nearly 100 lawmakers called on Biden to “provide meaningful student debt cancellation.” The sum of $50,000 per borrower has been proposed.
That’s been the Democratic drumbeat — knock out a sizable chunk of the $1.7 trillion in student loan debt and free the fiscally burdened to be able to buy homes, start families — and vote Democrat.
The letter was led by Senate Majority Leader Chuck Schumer, D-N.Y., joined by our own Sen. Elizabeth Warren, Rep. Ayanna Pressley and scores of others. A statement from Schumer’s office noted that “most borrowers are not financially prepared to shoulder another bill as they face skyrocketing costs for necessities like food and gas.”
This is especially rich, as the Democrats’ profligate spending helped fuel the inflation spike.
“Canceling student debt is one of the most powerful ways to address racial and economic equity issues. The student loan system mirrors many of the inequalities that plague American society and widens the racial wealth gap,” wrote the lawmakers. “Student debt cancellation must be one of the key actions in your comprehensive approach to advance equity as our nation works to rebuild a stronger and more equitable economy.”
Taking out student loans, getting a college education and then not having to pay would be a great gift to graduates. By ridding themselves of loan payments, they could save hundreds every month.
It would also be a windfall if people who took out mortgages, car loans and who carry credit card debt could walk away from payments without consequences — the cash freed up could pay for many quality-of-life upgrades.
But that’s not on the table — adults who assume debt are supposed to be responsible and pay for the things they purchase.
While lawmakers paint the cancelling of student loan payments as a win-win, the move is anything but.
As the Hill reported, cancelling $10,000 per borrower would cost the federal government around $3.73 billion, while the estimated price of eliminating $50,000 per borrower would tally near $1 trillion.
No matter what amount is canceled, the government stands to take a loss as federal student loans would cost not only the remaining principal balance but the interest that was expected on all future payments.
A 2019 Moody’s analysis estimated loan cancellation could result in $86 billion in lost revenue from student loan principle, interest and fees.
A report from the Urban Institute also notes canceling student loan debt would gradually increase the national debt.
What the lawmakers pushing for debt cancellation have missed is that this lost revenue will have consequences for future budgets. An analysis by Brookings Institution fellow Adam Looney found that any diversion of dollars could take away from vital social programs and create higher taxes in the future.
“There are real trade-offs in terms of — in a sense of, there is a budget, and so the more you spend on one program, the less you have available to spend on other programs,” Looney told Changing America.
Cancelling student debt is a great way to appeal to the youth demographic so key to Democratic victories, but the costs, born by the rest of us, are just too high.
