Under progressive pressure to force grandiose policy changes, President Biden has generally embraced sensible reforms over flashy gimmicks. But his Wednesday student loan announcement did just the opposite.
The loan pause, which President Donald Trump instituted in March 2020, was an emergency measure at a time when people were struggling to find jobs or had to remain home due to the pandemic. Thankfully, the situation is very different today: The unemployment rate for people with bachelor’s degrees and higher is just 2 percent. It’s hard to make the case that college graduates are still facing an unprecedented crisis.
The loan-forgiveness decision is even worse. Widely canceling student loan debt is regressive. It takes money from the broader tax base, mostly made up of workers who did not go to college, to subsidize the education debt of people with valuable degrees. Though Mr. Biden’s plan includes an income cap, the threshold does not reflect need or earnings potential, meaning white-collar professionals with high future salaries stand to benefit. Student loans, moreover, are a poor proxy for household income: An analysis by policy researcher Jason D. Delisle found that, in 2016, students from high-income and low-income families were just as likely to take on debt for their first year in an undergraduate program — and students from high-income families borrowed the largest amounts.
Mr. Biden’s plan is also expensive — and likely inflationary. The Committee for a Responsible Federal Budget estimates that extending the loan pause to the end of the year would cost $20 billion, while forgiving $10,000 for households making less than $300,000 would cost $230 billion. Together, these policies would nullify nearly a decade’s worth of deficit reduction from the Inflation Reduction Act. Moreover, it is unclear that the 1965 Higher Education Act even grants the president the legal authority to take such a sweeping step, given that it was historically understood to permit only more targeted relief.
True, Mr. Biden did not go as far as many on the left wanted: Democratic lawmakers and activists had urged the White House to cancel up to $50,000 in student loan debt, with no income limits. Mr. Biden was right to rule that out earlier this year — and would have been wise to focus on reforms that help the neediest.
His proposal to make the income-driven repayment program more generous at least targets a program that scales the help people get with their incomes. But a better approach would focus on expanding Pell Grants and other college finance programs pinpointed to the truly needy. Mr. Biden’s latest budget proposal called for doubling the maximum awards for Pell Grants by 2029 — a measure that would make college more affordable for low-income families for years to come. And, as with other worthy programs, Congress and the Biden administration should find a credible way to pay for such an expansion, rather than just adding more to the national tab.
Mr. Biden’s student loan decision will not do enough to help the most vulnerable Americans. It will, however, provide a windfall for those who don’t need it — with American taxpayers footing the bill.
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