Monument to destructive assumptions
WASHINGTON -- Anyone who has taken a swig from the flask of recent history knew President Joe Biden was going to decree another extension of the pause on federal student loan payments. While celebrating the economy’s health -- 3.6% unemployment, 2% unemployment for college graduates -- he has announced a sixth extension, through Aug. 31, to give borrowers relief from current economic conditions.
The Constitution, which modern presidents treat as a tissue of suggestions to be complied with when doing so is not inconvenient, says: “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” The Committee for a Responsible Federal Budget (if the committee has 20 members or so, it has about half of the Americans who care about responsible budgeting) is not amused. It says this will bring to more than $115 billion the effective disbursement, granted by executive largesse, of funds that otherwise would have flowed into the Treasury in payments of principal and interest. Now four more months, at about $5 billion per month in non-accrued interest, will fuel consumption in the overheated economy.
In March 2020, the first suspension of loan payments was instituted by presidential action (remarkably, Congress then involved itself in governance by codifying the suspension) as the economy plunged into lockdowns and uncertainty. President Donald Trump extended it two times.
Twenty-eight days into his presidency, Biden, responding in a CNN town hall to a question-cum-exhortation about loan forgiveness of “$50,000 minimum,” embarked on a syntax-defying 648-word ramble that included an almost decipherable vow not to forgive “the billions of dollars in debt for people who have gone to Harvard and Yale and Penn.” Now, however, he has again given such people, included in the about 41 million borrowers, relief. Otherwise, he says, resumption of loan payments in May could produce a cascade of delinquencies and defaults that would “threaten Americans’ financial stability.” It is remarkable that the economy can be both as robust and as fragile as he says it is.
The loan payment pause is progressives’ second-favorite regressive policy, second only to raising (if not abolishing) the cap on their affluent voters’ deductions of blue states’ high state and local taxes. A Brookings Institution study says about a third of student debt is owed by the wealthiest 20% of households (only 8% by the bottom quintile), and it is disproportionately held by those with advanced degrees, who have especially high lifetime earning potential.
The $1.6 trillion mountain of student debt -- more than auto debt, credit card debt or any consumer debt other than mortgages -- is a monument to destructive assumptions:
That ever-higher college enrollments are necessary for a healthy economy. (The Federal Reserve Bank of New York, however, said 41% of recent college graduates were in jobs this past December that did not require a college degree. And some businesses likely require job applicants to have college degrees because employment tests are legally problematic when they have “disparate impact” on minority applicants.)
That a degree is necessary for a fulfilling life. (This denigrates the lives of the 62% of Americans age 25 and older who do not have degrees.)
That college degrees have high returns on investment. (Forty percent of college graduates do not earn more than the average high school graduate 10 years after leaving school. More than half the students of about one-third of colleges and universities earn less than high school graduates after 10 years.)
Instead of rethinking many assumptions and practices, Biden is poised to use student loan difficulties as an occasion for political opportunism on a grand scale. When the latest payment pause expires after Aug. 31, it is highly unlikely that most borrowers will then have to resume full payments. It is highly likely that there will be not just another payments pause but a splashy and expansive loan forgiveness -- one of the largest wealth transfers in U.S. history, by presidential fiat.
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George Will’s email address is email@example.com.
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