Think Biden’s student loan forgiveness is unfair? Take a look at the fine print
President Joe Biden’s plan to instantly cancel up to $20,000 in individual loans is bad enough, costing taxpayers north of $300 billion – but the rest of his idea is even worse: he wants the public eat almost everything coming student debt too.
Yes, “Part 1” is horribly unfair: People who chose not to take such loans, or who paid them back, or who never went to college, will foot the bill for borrowers who graduated from university with excellent income. Yet the rest of the regime would render this injustice permanent.
Biden would lower borrowers’ maximum monthly payment on undergraduate loans to just 5% of ‘discretionary’ income – and reduce the amount of earnings considered “discretionary”. So it would wipe out all remaining debt after only 10 years for many borrowers.
The payment limit itself is enormous: the White House brags about it: “no borrower earning less than 225% of the federal poverty level…will have to make a monthly payment.” at all. And even those earning more than $50,000 right after graduation would face insignificant payouts — barely shaking the principal before Biden slaps the bill on the taxpayers.
In short, it is a recipe for almost free “loans” for an ever-increasing number of people, courtesy of the general public. Until the public goes bankrupt, that is. Penn Wharton’s budget model estimates that the full plan could drive total future costs toward $1 trillion.
Here’s the key problem, as Reason’s Robby Soave explains: The arrangement gives both universities and students an incitement to “screw the taxpayers”. Students wouldn’t care how much they borrowed, since they wouldn’t have to repay more than 5% of their “discretionary” income for just 10 years, regardless of the amount of the balance. Universities could then raise tuition fees, knowing that students could simply borrow more to cover the extra costs and incur no additional cost to themselves. It’s crazy.
One possible way to contain the damage is to cap tuition fees. Taxpayers would still end up paying a fortune, but the system might not go haywire so quickly. Alas, Biden’s plan barely appears to endorse this idea: “Colleges have [a moral] obligation to maintain reasonable prices and ensure borrowers get value for their investments,” is all the White House says.
What a knee: As the fact sheet notes, inflation adjusted tuition fees have tripled in the past 40 years, and that’s largely because government aid: with Uncle Sam, universities simply raised their prices.
As for borrowers getting “value for their investment” – ha! Instead, many simply get liberal mush that doesn’t allow them to earn jobs that pay enough to pay off their loans.
It works great for the left: Schools full of liberal faculty and staff raise more and more money while brainwashing kids into thinking like leftists, all with taxpayers footing the bill. . Their only problem: it’s unsustainable.
And when it all comes crashing down everybody suffers.