Opinion: Biden's student loan forgiveness plan has issues

There are four main issues with President Joe Biden’s executive order forgiving a portion of the nation’s student loan debt: its constitutionality, its moral hazard, its cost, and the limited breadth of its benefits by comparison.

Nothing of the sort that would make a person question whether it’s a good plan, right?

It’s not a good plan. It’s a plan that means well. It puts a bandage on fundamental problems that it doesn’t address.

Biden’s promise is to cancel up to $10,000 in federal student loans for those who still owe money (and up to $20,000 for those who qualified for a Pell Grant as undergraduates, meaning they had a higher degree of financial need at the time). This also promotes racial justice, since Black Americans hold more student debt on average — and for longer — than do white Americans.

Presumably there’s an electoral calculation. A recent essay on how Democrats can be more competitive, published in The New York Times, explains the appeal. “(G)iving even a minority of Americans something that absolutely knocks their socks off, changes their lives forever and gets them talking about nothing else to every undecided person in earshot may be worth five Inflation Reduction Acts,” writes Anand Giridharadas, author of “The Persuaders: At the Front Lines of the Fight for Hearts, Minds, and Democracy.”

The administration has been pushing ahead, having begun a soft launch of the application process for relief this month even as lawsuits threatened to tangle the effort.

Inasmuch as the relief would change beneficiaries’ lives — which we don’t deny it could do for those individuals and their families — how could we oppose it?

In the simplest terms, the president cannot spend money that isn’t authorized by Congress. The Biden administration is relying on an interpretation of the Higher Education Relief Opportunities for Students Act of 2003. Various groups have asked the court to block implementation, and on Oct. 21, the Eighth Circuit Court of Appeals temporarily halted the plan.

Regardless of how the court cases play out, Biden’s unilateral exercise of power over the purse is concerning. The 2003 law was intended to allow the government to respond to emergencies.

There is also a moral hazard.

According to U.S. News & World Report, the growth in tuition and fees at what it categorizes as “national universities” ranges from 134% over the last 20 years at private schools to 175% for in-state students at public schools. That far outpaces general inflation. And according to research published by McKinsey and Co., each graduating class has more debt than the class before.

Biden’s plan will not alleviate those pressures.

Instead, schools will have little incentive to control costs and students will have little incentive to maximize value if they know future loan forgiveness is conceivable.

And there is the cost to taxpayers.

The Congressional Budget Office estimates that the plan will cost about $400 billion over 30 years, adding to the deficit.

And not all borrowers will see complete forgiveness of their student loan debt – only about 33%. The people with the highest debt loads are those with graduate and professional degrees who ought to be able to support repayment.

It’s not fair that the costs of higher education have become so onerous in just a generation’s time. It’s also not fair that people who’ve been unable or disinclined to repay their loans will get a reward that those who followed through on their commitment won’t.

— Minneapolis Star Tribune