Opinion Review & Outlook Biden’s Student Loan Howlers It takes a White House economist to come up with these beauties.
You almost have to pity the Biden Administration officials tasked with devising an economic justification for its latest student-loan forgiveness vote-buying ploy. Readers may get some laughs from their howlers.
The White House Council of Economic Advisers (CEA) acknowledges in a report this week that President Biden has already provided enormous debt “relief” to borrowers through his sweetened income-based repayment plans. These plans cap borrower payments at 5% of discretionary income, waive future interest accruals, and discharge remaining balances after 20 years.
Thanks to this back-door loan forgiveness, 4.3 million borrowers don’t have to make payments. CEA’s simulations also show that “an average borrower with a bachelor’s degree could save $20,000 in loan payments.” One with an associate degree would pay roughly $11,700 less than under standard repayment plans, not adjusting for inflation.
But the White House economists say even more debt relief is needed because the wage premium for workers with degrees hasn’t increased commensurately with college sticker prices. “Rapid and unforeseeable rises in prices and declines in college wage premia have contributed to decades of ‘unlucky’ college-entry cohorts,” the report says.
So students who chose expensive degrees that haven’t led to gainful employment are merely “unlucky.” And because employers don’t appropriately value their degrees, the government must subsidize these poor graduates.
The economists dismiss concerns that loan forgiveness will cause colleges to raise their prices, noting that more than 70% of undergrads attend “public colleges, which are not profit-driven and often have statutorily set tuition.” As if state schools don’t try to sop up as much federal money as they can.
The CEA report adds that “student debt relief could boost consumption” in the short-term and make it easier for young borrowers to afford homes. But the economy isn’t suffering from under-consumption these days, and the White House is already flooding the zone with $2 trillion in annual deficits at full employment. Even Keynes would cringe at that one.
Leave aside the long-term economic damage from encouraging the moral hazard of taking on more debt. It doesn’t take an economics degree to understand the perverse incentives the Administration is creating. But perhaps they don’t teach that in college anymore.
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