Canceling Student Debt Accentuates the Class Divide

by Chris Saxman

The big news of the week was President Biden’s announcement that he was canceling a lot of student higher education debt. #IsItLegal?
Here are three non-judicial-branch reactions to the Biden plan:

The Washington Post Ed Board:

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….

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.

President Obama’s Chairman of Council Economic Advisors:

The Wall Street Journal  Ed. Board:

Worse than the cost is the moral hazard and awful precedent this sets. Those who will pay for this write-off are the tens of millions of Americans who didn’t go to college, or repaid their debt, or skimped and saved to pay for college, or chose lower-cost schools to avoid a debt trap. This is a college graduate bailout paid for by plumbers and FedEx drivers.

When you’ve lost WAPO, WSJ, and Obama’s Chair of the CEA…

Can you imagine the reactions of governors and state legislatures? #HigherEdFunding #TheyDon’tVoteForUs

Speaking of moral hazards…who can forget CNBC’s Rick Santelli’s epic February 2009 rant from the floor of the Chicago Mercantile Exchange on the subprime mortgage bailouts:

Don’t recall that rant?

It launched the Tea Party movement which was the likely precursor to national populist movements across the country and globe. That eventually culminated, in America, as the MAGA/Drain the Swamp movement with the election of Donald Trump.

In poll after poll, cross tabs have shown that the global political realignment is economic, not ideological. Often times in America, our culture, and the resulting behavior of the two political parties, has been defined by the classic Haves vs. Have Nots.

Today, the Haves have a college degree and better lifetime earnings while the Have Nots have not a college degree and have not higher lifetime earnings. The resulting Have economic mobility, or Have Not, has created hollowed-out rural economies bereft of talent, which flees, or already fled decades ago, to sprinklered suburban lawns or urban centers of consolidated capital.

The division is not only economic but deeply emotional for those left behind. #Resentment

And when those Have Nots are hectored at by the cultural coastal elites, they will get behind anyone or anything who will fight for them. If you don’t get that then you cannot comprehend why so many fervently support Donald Trump. It ain’t about Trump. In the end, we do things for ourselves.

Or as J.D., our drywall dust-covered contractor with “it wasn’t for me” one semester of college under his belt, so succinctly put Biden’s plan, “I think it’s bullshit.”

J.D.,26, has a “Don’t Tread on Me” license plate and no knowledge of the aforementioned Tea Party movement. But he did share with me from his smartphone a Facebook post that noted how college loans are being forgiven but contractor loans are not, all while he is working… in his words, “to get by.”

Chris Saxman is executive director of Virginia FREE. This column has been republished with permission from The Intersection.

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27 responses to “Canceling Student Debt Accentuates the Class Divide”

  1. James Wyatt Whitehead Avatar
    James Wyatt Whitehead

    So, the average monthly bill on college debt is about 400 bucks a month. What will our debt free friends do with this surplus of money?

    1. Lefty665 Avatar

      Act Blue contributions? Half an EV car payment? Cocaine? Offset Bidinflation at the grocery store?

    2. Stephen Haner Avatar
      Stephen Haner

      Pay their exploding energy bills.

  2. When you’re a “progressive” president and your “progressive” give-away plan is opposed by the Washington Post, then you’ve lost pretty much everybody.

    Except the majority of the beneficiaries of the largess, of course…

    1. dave schutz Avatar
      dave schutz

      Which beneficiaries include 200 of the aides in the White House, so there’s that…

  3. Lefty665 Avatar

    My parents paid for my college education. I paid for my kids college educations with money I saved. It came out of my family’s current consumption. Guys I pick music with paid for their kids college, and they include plumbers and carpenters. They and I are ripped that this giveaway to many with masters degrees is being paid for out of our tax dollars and that it more than offsets any deficit reduction from the misnamed “Inflation Reduction Act”. That American families with an average income around $70k are paying for couples with incomes up to $250k is revolting. It is a measure of how badly the Dems have trashed New Deal populism.×750.jpg

  4. energyNOW_Fan Avatar

    This gets into Human Risk assessment and weakness of human logic.

    If you want to put a dirty coal plant in someone’s backyard, they will scream bloody murder. If you put money in their pockets, by say, cutting local taxes in half, they will ask for more coal plants.

    Putting money in peoples pockets like this is legal bribery to buy votes. That is why the loan forgiveness applies to fairly upper middle class households, to get the money widely-$pread.

    Money talks in our society. It just works. Trump knew it: Trump wanted to give out the COVID relief money to people before the 2020 election. Mitch McConnell would not allow it, and that sealed the Repubs fate in the 2020 elections. Trump lost for that reason (and other things) but with $$ handout he could have won.

    What can I say? Buy iBonds, that’s what I am doing.

    Oh yeah, I paid off my kids loans a few years ago myself.

  5. Donald Smith Avatar
    Donald Smith

    There’s still time to prevent this from happening.

    “The Biden administration will launch an application in the coming weeks for borrowers to provide their income information or if borrowers are unsure if the department has their income information already. The application will be available by early October, a senior administration official told CNN. After a borrower completes the application, the individual can expect the student loan relief within four to six weeks, the official also said.”

    (Emphasis added).

    There is plenty of time for at-risk Democrat incumbents to contact the White House and say “let’s rethink this.”

  6. LarrytheG Avatar

    If we REALLY want to talk about inflation – give thousands of dollars in stimulus money to everyone but especially do to people who don’t need it and will use it to splurge on a wide variety of things not only increasing demand, pushing up prices, but causing supply chain shortages.

    That’s the problem with such “help” and that includes the student loans which actually did try to do something more targeted but it will never please the folks who are opposed to the basic concept to start with.

    The Tea Party did not get started over this especially the tea party that morphed into MAGA that loved the Trump tax cuts that were not paid for and put the deficit/debt on steroids.

    Talk about hypocrisy of promising to pay down the debt then turning around and doing the opposite:

    MAGA is not about deficit/debt/budget at all. It’s much more about culture war, white nationalism, anti-immigration, autocracy and worse.

    1. Talking of programs not paid for.
      In July, Democrats passed the $280 billion CHIPS Act, now the $300-500 billion loan bailout; how were they paid for?

    2. Let’s throw some simple math at this claim that programs are paid for. Since taking office, Biden has, among other expenditures, signed the $1.9Tn Covid relief bill, the $1.2Tn infrastructure bill, and forgiven $0.5 Tn in student debt. A total of $3.6Tn. Did he pay for that?
      The IRS says there are about 150 million tax returns filed each year, and that the bottom half pay $100 or less in taxes. That means that the tax burden (paying for it) is carried by the top 75 million filers.
      $3.6 trillion / 75 million = $48,000 per tax filer to pay for what Biden borrowed in 18 months. Did your taxes go up $48,000? Was $3.6Tn taken from other programs? If not, how was it paid for?
      Note that we are talking about just what was added to the regular budget.

      1. LarrytheG Avatar

        Both bills were stimulus bills, not paid for.

        1. How does one tell the difference between good deficit spending and bad deficit spending? Can we not pay some of the $30Tn we owe? How much more can Joe spend before we have a real problem that would cause democrats to stop adding to the debt?

      2. The expense/revenue forecasts are 10 year and include cuts and other sources of revenue besides household income tax.

    3. Talking of programs not paid for.
      In July, Democrats passed the $280 billion CHIPS Act, now the $300-500 billion loan bailout; how were they paid for?

        1. Sorry, I don’t see anything in that chart that tells me how they paid for those handouts.

  7. LarrytheG Avatar

    Anyone who thinks we are or should do away with student loans for College is living in LA LA Land.

    The reality is that even Conservatives will want something.

    And the problem is there will always be critics as well as poorly-designs programs especially with regard to basically incentivizing higher Ed to continue it’s relentless price gouging.

    The “right” loan designs need to be not only tied to the students fiscal and academic behavior but also the Schools behaviors which often practice price inflation at twice/three times baseline inflation as well as close-to-the-line predatory behaviors like maximizing loans that minimize up-front out-of-pocket costs.

    We need to incentivize schools that offer better value, quality programs for reasonable prices and penalize institutions that are bloated, overpriced and low value for the money.

    The amount of the loan that is available should be directly tied to the specific schools costs and much lower loans available to students for Colleges whose costs are higher than others. The more they charge more, the lower the loan available.

    This will then enable/encourage/incentivize students to “shop” for the best value where they will get more for their loan money and owe less longer term loans.

    We need to also provide loan-forgiveness for certain location-specific occupations like schools that have the most severe shortages as well as rural/urban locations medically underserved.

    We need a BRAC-type commission to develop the loan program design – not the typical congressional yahoos who almost never seem to do much other than the typical and awful Christmas tree legislation.

    And YES, I would EXPECT such things to first come from folks who portray themselves as Conservatives. Lead the way and stop the hypocrisy.

    1. f/k/a_tmtfairfax Avatar

      Congress could design both direct aid to colleges and student loans in a manner that you suggest — rewarding cost-effective colleges and punishing cosd ineffective colleges. Create indices of efficiency that look at both starting cost structxure and ongoing. The more efficient colleges get more money and students can borrow what they need. For inefficient colleges, they get substantially less in funding and students cannot borrow what they would otherwise need. Both actions would put strong pressure on colleges to drive out waste and inefficiencies. And prospective students would avoid the inefficient schools.

      1. LarrytheG Avatar

        Good Lord, we Agree! Yes, as long as we keep giving subsidies, the schools will suck it up. Until we tie the amount of money to cost metrics than then involve the student making choices… it’s a no win thing.

  8. f/k/a_tmtfairfax Avatar

    Bloonberg suggests that the student loan forgiveness, while a non-taxable event for federal income tax purposes because of action by Congress, may be taxable for state income tax purposes in 13 states, i.e., becasue their state legislatures haven’t fully conformed state law to the IRC. My former residence is one of the 13.,count%20toward%20federal%20taxable%20income.

    1. Lefty665 Avatar

      Even if it is taxed at Virginia’s top rate that will only be a little more than a month’s worth of what they got.

    2. LarrytheG Avatar

      If a mortgage or loan company forgives a debt, a tax document is generated and it is booked as income.

  9. f/k/a_tmtfairfax Avatar

    Bloonberg suggests that the student loan forgiveness, while a non-taxable event for federal income tax purposes because of action by Congress, may be taxable for state income tax purposes in 13 states, i.e., becasue their state legislatures haven’t fully conformed state law to the IRC. My former residence is one of the 13.,count%20toward%20federal%20taxable%20income.

  10. LarrytheG Avatar

    A good number of Democrats are not happy with the bill either and for the same reasons as others. Biden was caught between warring factions and made a choice.

  11. Matt Adams Avatar
    Matt Adams

    The devil will be in the details. Will this forgiveness be directed towards the principal or the interest. Most likely the interest and all these individuals who received this break, will at another time find themselves with the same amount of debt but less buying power thanks to a devalued dollar.

    1. Lefty665 Avatar

      OTOH inflation makes the debt cheaper to pay off.

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