Illinois Attorney General Kwame Raoul this week urged President Biden to fully cancel federal student loan debt owed by every federal student loan borrower in the country.
All $1.7 trillion of it. For everybody, rich or poor. No questions asked.
And who created the student loan mess? Both parties bear blame, but a central villain was none other than the guy Raoul wants to forgive the debt – Joe Biden.
Raoul’s press release on the matter is here, along with a letter he signed to Biden where he made the request along with seven other progressive state attorneys general.
Start with the simple but undeniable unfairness of Raoul’s proposal, though there’s much more to cover than unfairness:
• What about parents who sacrificed to pay for college instead of borrowing?
• What about students who chose to work and earn more during school instead of borrowing?
• What about graduates who delayed spending or having a family so they could repay their loans?
• What about graduates who passed over lower paying jobs that they might have found easier or more rewarding, choosing more demanding jobs with better pay to cover loan repayment?
Those questions are entirely rhetorical because there is no reasonable answer to the abject unfairness of favoring those who have sacrificed over those who have not.
Compounding the unfairness, those who sacrificed would be made to pay the tab for those who haven’t — $1.7 trillion worth. It’s not really debt forgiveness at all. It’s a transfer of debt from student borrowers to federal taxpayers. The loss to the federal government would end up as yet another addition to the federal deficit, which taxpayers eventually must face.
Raoul claims in his letter that his proposal would “be one of the most impactful racial and economic justice initiatives in recent memory.” Widespread cancelation of student loan debt, he says, “is not merely a matter of economic justice, but of racial justice as well.”
That’s wrong on both counts. Loan cancellation would be regressive, and particularly so if student debt is cancelled in full, with no cap on amount or income. The windfall from Raoul’s proposal would go mostly to those who are already well off.
Student debt is in fact “overwhelmingly owed by higher-income, better-off Americans, so that’s who gets the money under a widespread student loan forgiveness plan,” according to Adam Looney, a senior fellow at the left-leaning Brookings Institution and student debt specialist. “If you look at who has student loans,” he told CBS, “it largely reflects who goes to college and graduate school in the U.S., and college and graduate school are overwhelmingly composed of people who are from upper middle class or high-income families.”
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a nonpartisan public policy advocacy group, says forgiving college debt would disproportionately benefit higher educated people. “The poorest people in the country don’t actually have student debt,” she says.
Limiting the amount of debt forgiveness and imposing income limits would make the forgiveness less regressive, but not by much. A recent study by the Federal Reserve Bank of New York found that even if you capped the forgiveness at $50,000 per borrower, low-income neighborhoods receive roughly 25 percent of debt forgiveness while high-income neighborhoods receive around 30 percent of forgiveness.
And even if you capped the forgiveness at $10,000, 67 percent would go to majority white neighborhoods, the study says. None of that apparently matters to Raoul. He wants to forgive all federal student debt regardless of income, which would be still more regressive and less helpful proportionately to minorities.
More inflation is another likely consequence of forgiving $1.7 trillion of debt. “On the margin, this would put more money into households that get the relief. And those households are more likely than not to use that additional cushion in their monthly budget to either purchase more things or purchase more services,” an analyst with investment bank Raymond James told CBS. “So if you had to put it in one bucket or another, it’s more in the bucket of contributing versus not contributing to inflation.”
Finally, it should bother an attorney general, in particular, that he is asking Biden to do something that’s probably illegal. Where does one man get the authority to wipe out $1.7 trillion of debt owed to the nation? Probably nowhere, according to a top lawyer in former President Barack Obama’s Education Department. As recently reported by the Wall Street Journal, that lawyer wrote that “If the issue is litigated, the more persuasive analyses tend to support the conclusion that the Executive Branch likely does not have the unilateral authority to engage in mass student debt cancellation.”
How did we get here?
Student loan debt is unquestionably a severe burden on many individuals and a drag on the entire economy. How did we get here? Government is largely to blame for the problem that government is now being asked to solve.
Both parties share in that blame, but President Biden himself is the leading culprit. The full story is told nicely by two left-leaning sources, The Guardian and The Intercept. Both publication’s columns cover the full history well, which is fairly long, but the key mistake came in 2005 when the Bankruptcy Code was amended to make student loans non-dischargeable. That vastly reduced any discipline in how much would be lent out and to whom, and it’s on the bankruptcy matter that Biden’s role was key.
From The Guardian:
The Republican-led bill tightened the bankruptcy code, unleashing a huge giveaway to lenders at the expense of indebted student borrowers. At the time it faced vociferous opposition from 25 Democrats in the US Senate. But it passed anyway, with 18 Democratic senators breaking ranks and casting their vote in favor of the bill. Of those 18, one politician stood out as an especially enthusiastic champion of the credit companies who, as it happens, had given him hundreds of thousands of dollars in campaign contributions – Joe Biden.
And from The Intercept:
Biden was one of the most enthusiastic supporters of the disastrous 2005 bankruptcy bill that made it nearly impossible for borrowers to reduce their student loan debt…. Biden came back to the legislation under the Bush administration; it passed the Senate in 2005 on a 74-25 vote, with most Democratic lawmakers voting against it…. George W. Bush signed it into law, and private student loan debt skyrocketed in the wake of its passage. The total amount of private student loan debt more than doubled between 2005 and 2011, growing from $55.9 billion to $140.2 billion….
The spike in student lending that followed from making the loans immune to bankruptcy in turn sparked other problems. For-profit colleges, some of which were predatory, ran up the bills as best they could. Traditional colleges and universities added suffocating levels of bloat, bureaucracy and silly new majors with no career future, and that continues on with no consequences.
Give credit where credit is due. The leading opponent of making student loans bankruptcy-proof was Sen. Elizabeth Warren, who lost what was a direct fight with Biden.
Maybe there’s somebody else who is wise to Biden’s role. Vice President Kamala Harris is now reported to be “increasingly wary of becoming part of the public face of the administration’s response,” Politico recently reported. She declined to participate in a Biden Administration video about pausing repayment obligations, sparking a bit of an uproar.
Who knows, but maybe Harris knows the backstory on the student loan crisis and Biden’s role in it. Maybe, just maybe, she figures that history will start to be told more often. If so, she is wise to stay away.