'Someone still has to pay': Student loan cancelation hurts average taxpayers, expert argues
Last week, President Biden said that he is considering student loan forgiveness for those Americans that make less than $125,000.
Heritage Fellow Jonathan Butcher told Campus Reform that 'loan ‘forgiveness’ is a misnomer because the truth is that the Biden administration...[is] proposing to move the costs from students with college debt to taxpayers.'
As the Biden administration promises a decision on whether it will cancel student loans, the White House continues to float idea after idea for what it might do.
Last week, Biden said that he is considering student loan forgiveness for those Americans that make less than $125,000.
That news follows Biden signaling late last month that he would make a decision about student loan forgiveness. That indication came during a closed-door meeting with House members, The Washington Post reported.
"I firmly believe that student loans should helo finance a path to opportunity, not become a lifelong burden," the White House said in a statement on behalf of the president to Campus Reform. "As President, I am committed to easing the burden of student loan debt for borrowers and making college more affordable for students."
"We have to give each new generation of Americans a fighting chance to pursue their education."
During his 2020 presidential campaign, Biden promised to forgive up to $10,000 of federal student loans per borrower.
"Through changes to the Public Service Loan Forgiveness, we are working to restore the promise of the program by having discharged loans for tens of thousands of public servants and bringing another nearly 1 million public servants closer to forgiveness," the statement read. "At the same time, I continue to support legislation providing $10,000 in debt relief to all federal borrowers.
But as Heritage Foundation Will Skillman Fellow in Education Fellow Jonathan Butcher told Campus Reform that the cost of delays in repayment is still passed on to Americans.
“The New York Fed estimates that the cost of the paused loan payments are $7.8 billion per month--again, a cost shifted to taxpayers,” he said.
Butcher explained, “loan ‘forgiveness’ is a misnomer because the truth is that the Biden administration and left-leaning lawmakers in Congress are proposing to move the costs from students with college debt to taxpayers. There's no ‘forgiveness’--someone still has to pay, and it will be taxpayers.”
Likewise, the Wall Street Journal editorial board has argued that Biden canceling loans would shift the burden to taxpayers.
Senate Democratic Majority Leader Chuck Schumer and others have been pushing for as much as $50,000 in forgiveness, according to CNBC.
In a press briefing, White House Press Secretary Jen Psaki stated that Biden “would make a decision about any cancellation of student debt before the conclusion of that pause on student loans,” referencing the current freeze on federal student loan payments which is set to expire at the end of August.
On Apr. 28, Biden confirmed that a decision would be made “in the next couple of weeks,” but emphasized that he was not considering $50,000 in debt reduction.
According to figures from the Education Data Initiative, student loan debt in the U.S. totals over $1.7 trillion across 43.4 million borrowers. The average federal loan balance comes out to about $37,000 per borrower.
According to Psaki, “Not a single person in this country has paid a dime on federal student loans since the president took office.”
On top of emergency debt relief, the federal government under the Biden Administration has forgiven a total of $17 billion in student loans through existing federal policies, per a report from Fox Business.
This figure includes $6.8 billion in loans forgiven via the Public Service Loan Forgiveness program, which offers loan forgiveness as an incentive for working in government or non-profit professions. Another $7.8 billion in debt was relieved through the total and permanent disability discharge program.
Butcher told Campus Reform that the Biden Administration has been using other actions to reduce debt’s impact on borrowers.
“[T]he U.S. Department of Education is already ‘forgiving’ loans through agency actions,” Butcher said. “For example, the department is re-categorizing millions of accounts in default and marking them as ‘current’ which will boost students' credit ratings. Again, these are students who were in default, and the agency is doing this simply through policy.”
Butcher said that forgiving loans once could set a precedent that changes the calculus for students borrowing in the future.
“It is difficult to say what future students will think about taking loans because the question remains whether this will be the only time Washington decides to force taxpayers to pay for student loans,” Butcher said. “Will they do it again in a year? Three years? Five years? This would make students more likely to take out loans, assuming they will not have to pay them back.”
Schools may also change their policies in the response to loan forgiveness by raising tuition and fees.
Lindsay Burke, Director of the Center for Education Policy at Heritage Foundation, wrote in February that “[a]ccording to the economic theory developed by former Reagan administration Education Secretary William Bennett, increases in federal student aid enable colleges to raise tuition prices since students have more access to financing.”
The Education Data Initiative reports that 37% of federal loan dollars are borrowed by graduate students. Out of all postsecondary students, including both professional and graduate students, 44% borrow from the federal government for a total of $45.3 billion.
When the data is broken down by the level of degree attained, 45% of doctoral degree recipients borrow loan at an average of $118,360.
And according to an analysis of Bureau of Labor Statistics data conducted by Northeastern University, the median annual salary for professional and doctoral degree recipients was over $96,772 per year.
By comparison, bachelor’s degree holders earn a median of just under $64,896. For those with a high school diploma, the median income is $38,792.
Butcher reported in February that the benefits of loan forgiveness benefit the wealthiest borrowers, including graduate students who are on track to earn substantially higher incomes.
“The wealthiest 40 percent of borrowers hold more than half—60 percent—of all loan debt,” Butcher wrote. “As a result, student loan forgiveness would result in borrowers at the bottom of the income scale receiving the least amount of the benefits.”
American Enterprise Institute Senior Fellow Beth Akers has argued that Biden may be feeling political pressure from the Democrat party to provide a progressive victory in advance of the midterm elections.
A Data for Progress poll suggested in March that 45% of respondents would be more likely to vote for Biden if he canceled $10,000 in student debt.
Conservatives took to Twitter to oppose Biden’s recent signals of debt forgiveness. Former Campus Reform correspondent and Lone Conservative founder Kassy Dillon wrote, “I just worked my butt off to pay off my very expensive student loans a few months ago. If Biden forgives student loans, I’m going to be livid.”
I just worked my butt off to pay off my very expensive student loans a few months ago.
If Biden forgives student loans, I’m going to be livid.
— Kassy Dillon (@KassyDillon) April 27, 2022
“I worked hard to pay off my loans,” Dillon told Campus Reform. “This isn't about being "selfish" or "insensitive." It's about responsibility. So many people made sacrifices for their education--including myself when I turned down law school because I couldn't afford it.”
“Forgiving student loans will only enable our corrupt universities to continue charging skyrocketing tuition prices while they wastefully spend,” Dillon continued. “Besides, our country cannot afford more government spending at a time when inflation is breaking records.”
In Butcher’s view, the long-term solution to the student debt problem requires that the federal government step back and private lenders step up.
“First, consolidate federal loan programs into fewer loan options,” Butcher told Campus Reform. “Then phase out these programs over a reasonable period so that private lenders can enter the market. Washington should not be underwriting college loans, yet that is what they are doing now for some 90 percent of all student loans.”
Butcher continued, “Second, businesses should offer income share agreements where employers help pay tuition costs in exchange for a student committing to work for the business for a mutually agreed period of time when they graduate. This will help the private sector to become more involved in recruiting and building talent while also limiting the federal footprint in higher ed.”
Campus Reform has contacted every individual mentioned in this article; this article will be updated accordingly.