Student loans have been a problem for a long time. Every policymaker in Washington, D.C., has known it.
Universities pocket full tuition from loans even if a student drops out after one day of class. Universities have become dependent on students being saddled with enormous amounts of debt to keep their doors open. Government-subsidized student loans have helped push up higher education costs 500% since 1985, almost twice the rate of general inflation.
During the Great Recession of 2009-10, President Barack Obama essentially nationalized the student loan program by taking banks and private lenders out of the process. He said it was because banks and lenders were making too much money providing financing for students who wanted to go to college.
All that did was set the stage for what President Joe Biden is doing today regarding student debt cancellation. It was a small hop, skip and a jump from direct financing of student loans to canceling them outright. When the authority governing student loans was transferred from the banking and tax laws of the private sector to our centralized government authority in Washington, it was like giving catnip to a feral cat.
Prior to 2010, federal loan guarantees were used to take risk out of loaning to college students. Sallie Mae and banks would issue loans to students which would be backed by the federal government. In case of default by the student, the federal government would take over the loan at a discount from the bank and use a guaranty agency to service the loan and try to collect payments from the student borrower.
Congress actually did a responsible thing by including credit reform in the 1990 Budget Agreement. Credit reform called for a present value accounting to be made of the future inflows and match them against the current year outflow of cash to determine the inherent subsidy cost of each federal loan program every year. The subsidy wound up being typically 3% of the total amount of student debt issued each year.
Direct federal funding of student loans opened up the possibility for the irresponsible actions Biden is doing right now ― using his executive power to cancel debt, interest on debt and past penalties for students in favored groups of his choosing. It is a blatant exercise at buying votes unlike anything seen in the past, including in Chicago under Mayor Daley and in New York’s Tammany Hall.
The Supreme Court overturned an earlier Biden effort to cancel student debt, which he has blatantly ignored. Biden has canceled student debt for 9% of all student debtors, which is estimated to cost the U.S. taxpayer $750 billion (with a capital B).
The real kicker is this: In the private sector, if a loan is forgiven, the amount forgiven is counted as current income to the recipient and taxes are due on that amount. If a loan for $100,000 is forgiven, then roughly $30,000 in federal taxes is due.
Under the American Rescue Plan Act, which Biden signed into law on March 11, 2021, all student loan forgiveness after Dec. 31, 2020, and before Jan. 1, 2026, was declared free from federal taxation. The presumption behind this provision was to grant full loan and tax forgiveness to people who might have been economically devastated by COVID, not every person who took out a student loan in the past.
COVID officially ended May 23, 2023. If Biden is reelected, he will keep on canceling student debt until 2026.
Biden and his minions have taken a very expansive view of this ill-conceived provision and applied it to any category of voter holding student loans they think will help him win reelection this fall. It is like he thinks he is a king from the Book of Leviticus who can declare a year of Jubilee and cancel debt without any regard for fairness to other borrowers or any sort of personal responsibility.
There may be close to $250 billion of unpaid federal taxes on the $750 billion of canceled debt Biden has done so far. Add them together and Biden has single-handedly, without any input from Congress or Republicans, increased the national debt by $1 trillion all by himself.
Forty-eight million current student debtors have not been granted Jubilee by Biden, primarily because they took loans out before the student loan guarantee program was abolished in 2010. Every one of them, plus the 100 million-plus people who have paid off their student loans fair and square ― Republican, Democrat and Independent ― should vote against him simply for this blatant injustice and abuse of presidential power.
Biden canceling student loans for political power has all the markings of a socialist strongman such as Venezuelan president Nicolas Maduro, not an American president.
