Biden seeks to buy votes with pricey student loan debt relief

Biden seeks to buy votes with pricey student loan debt relief

Taxpayers will be stuck with the tab, and with higher tuition costs

Article content

How much does it cost to buy votes? It can be a high price tag, whether you’re talking about using tax money to subsidize favoured businesses or tariffs that shield workers from competition and drive-up prices for consumers. In the case of President Joe Biden’s latest proposal for relieving borrowers of the burden of paying back student loans, the cost will be many billions of dollars on top of the hundreds of billions already offered to young college graduates who also happen to be voters.

Advertisement 2

Article content

“President Biden is announcing his Administration’s new plans that, if finalized as proposed, would provide debt relief to over 30 million borrowers when combined with actions the Administration has taken over the last four years,” reads an April 8 fact sheet from the White House. “These actions are expected to provide significant relief to Black and Latino borrowers, borrowers who attended community college, and borrowers who are financially vulnerable because they took out debt but never had the chance to complete their degree.”

Article content

That sounds very generous, especially given the US$7.4-billion price tag cited by a separate U.S. Department of Education press release. The Education Department specifies that the plan is “for borrowers who signed up for President Biden’s Saving on a Valuable Education (SAVE) Plan and are eligible for its shortened time-to-forgiveness benefit and as a result of fixes made by the Administration to income-driven repayment (IDR) forgiveness,” so its costs are in addition to those of SAVE. Frankly, though, that makes it awfully spendy for a government that measures its debt in tens of trillions of dollars and borrowed another US$1.7 trillion over just the past year. Worse, according to independent economists, the full cost is much higher than the official figure.

Article content

Advertisement 3

Article content

“We estimate that President Biden’s recently announced ‘New Plans’ to provide relief to student borrowers will cost $84 billion, in addition to the $475 billion that we previously estimated for President Biden’s SAVE plan,” counter economists Junlei Chen and Jesús Villero with the University of Pennsylvania’s Penn Wharton Budget Model.

And, while the Biden administration insists its debt-relief plan is intended to ease burdens for those who are financially vulnerable and at-risk, the nonpartisan Penn Wharton team, which does independent analysis of the fiscal impact of public policy, says that many of the beneficiaries of the White House’s largesse with other people’s money are rather more well-heeled than advertised.

“The New Plans will also relieve some longer-term student debt for about 750,000 households making over $312,000 in average household income,” add Chen and Villero. “The main reason for this high average household income is that the SAVE plan already provides long-term debt relief to households with lower incomes.” Real median household income was US$74,580 in 2022 (the latest figure available), according to the U.S. Census Bureau, down from US$76,330 in 2021. So, the United States federal government is poised to run up a US$559-billion tab, payable by the taxpayers, to relieve the debt of people who voluntarily took out loans, many of whom are wealthier than the average American. That seems a fair, if somewhat (justifiably) cynical, summary.

Advertisement 4

Article content

It could be worse, of course. Taxpayers would be on the hook for even more money if the U.S. Supreme Court hadn’t turned away the Biden administration’s unilateral scheme for debt reduction and, in many cases, cancellation, because of the lack of congressional authorization. That plan was estimated to cost US$400 billion by the Congressional Budget Office, which is constrained by certain mandatory government-friendly assumptions. The Penn Wharton Budget Model pegged it to cost at least US$605 billion, with a warning that “total plan costs could exceed $1 trillion,” depending on how it worked in practice.

The White House responded by tweaking the terms of an existing program to create what President Biden administration called “the most generous repayment program ever.” The “new plans” build on that program and so are, of course, more generous yet. But what are a few hundred billion dollars when there’s an election at stake and voters to be courted? Analyzing the results of a recent poll, National Public Radio reported earlier this month that “young voters, Latinos and independents in the survey are either sliding away from Biden or aren’t sold on voting for him.” A nearly simultaneous Vox story noted that “just about every national poll seems to show that Biden is underperforming with young people compared to his 2020 results (and) that Biden is not only losing ground; Trump is gaining support.”

Advertisement 5

Article content

Not coincidentally, recent college graduates pondering student loan payments tend to be young. They might, the thinking goes, show their gratitude to politicians who ease the burden. But will they thank those politicians when college prices rise even higher as a result?

Making it easier to borrow to pay college costs also makes it easier for colleges to increase those costs. A 2017 study from the Federal Reserve Bank of New York found that every dollar of subsidized student loans drove up tuition by 60 cents.

“They raise them because they can, and the government facilitates it,” Al Lord, former chief executive of student-loan giant SLM Corporation (commonly known as Sallie Mae), told The Wall Street Journal in 2021 about the effect of loan subsidies on tuition prices.

That’s the result with loan programs that adhere to the idea that there are rules; what will the result be of politically driven rewrites that dispel expectations that loans have to be repaid in full? The New York Fed study also found “a positive association between aid-dependence and subsequent enrollment expansion.” Subsidizing loans not only drives up college prices, it also induces more people to borrow. Reducing or forgiving repayment can only be expected to accelerate the process.

Wooing young voters with loan forgiveness may or may not be an effective campaign strategy. Nobody seems to have a good handle on what motivates the electorate these days. But whether or not this vote-buying scheme works out in the end, Americans will be stuck with the massive bill for the effort, and with college tuition prices hiked ever-further beyond reach.

National Post

Recommended from Editorial

Article content