Home Consumer debt $1.6 trillion in student debt is a monument to destructive assumptions | Editorial chronicles

$1.6 trillion in student debt is a monument to destructive assumptions | Editorial chronicles


Anyone who took a sip from the flask of recent history knew that President Joe Biden was about to decree another extension of the pause on federal student loan repayments. While celebrating the health of the economy – 3.6% unemployment, 2% unemployment for university graduates – he announced a sixth extension, until August 31, to relieve borrowers of current economic conditions.

The Constitution, which modern presidents treat as a tissue of suggestions to be adhered to when not inconvenient, says, “No money shall be drawn from the treasury, but accordingly from appropriations created by law.” The Committee for a Responsible Federal Budget (though the committee has about 20 members, it has about half of Americans who care about responsible budgeting) is not amused. It says this will bring to more than $115 billion the actual disbursement, granted by the largesse of the executive, of funds that would otherwise have gone to the treasury in the form of principal and interest payments. Now four more months, at about $5 billion a month in unaccrued interest, will fuel consumption in an overheated economy.

In March 2020, the first suspension of loan repayments was instituted by presidential action (remarkably, Congress then got involved in governance by codifying the suspension) as the economy plunged into lockdowns and uncertainty. President Donald Trump has extended it twice.

Twenty-eight days into his presidency, Biden, responding in a CNN town hall to a question-urging about loan forgiveness of “minimum $50,000,” launched into a syntax-defying 648-word jaunt. which included an almost decipherable vow not to forgive “the billions of dollars in debt for people who went to Harvard, Yale and Penn.” Now, however, he has once again given relief to those people, included in the estimated 41 million borrowers. Otherwise, he says, the resumption of loan repayments in May could produce a cascade of delinquencies and defaults that would “threaten the financial stability of Americans.” It is remarkable that the economy can be both as robust and as fragile as he says.

Pausing loan payments is the second-favorite regressive policy of progressives, second only to raising (if not abolishing) the cap on their affluent voters’ deductions from high local and state taxes in blue states. A study by the Brookings Institution indicates that about a third of student debt is owed by the richest 20% of households (only 8% by the bottom quintile), and that it is held disproportionately by those who have higher degrees, which have particularly high earning potential.

The $1.6 trillion mountain of student debt—more than car debt, credit card debt, or any consumer debt other than mortgages—is a monument to destructive assumptions:

That ever-increasing college enrollments are necessary for a healthy economy. (The Federal Reserve Bank of New York, however, said 41% of recent college graduates worked in jobs last December that didn’t require a college degree. And some companies likely require job applicants to have a college degree, because employment testing is legally problematic when it has a “disparate impact” on minority applicants.)

That a degree is necessary for a fulfilling life. (It belittles the lives of the 62% of Americans 25 and older who don’t have a college degree.)

That college degrees have a high return on investment. (Forty percent of college graduates earn no more than the average high school graduate 10 years after leaving school. More than half of students at about a third of colleges and universities earn less than high school graduates after 10 years.)

The financially dubious pursuit of master’s degrees is made possible by excessive student borrowing. Since 2011-2012, colleges and universities have added more than 9,000 master’s degree programs, and now 24.1 million people have such degrees, a 51% increase in a decade. Acquiring colleges and universities are expanding their offerings to extend their customers’ stays on campus, siphoning off more of the ocean of cash available through subsidized student loans.

Instead of rethinking many assumptions and practices, Biden is poised to use student loan difficulties as an opportunity for large-scale political expediency. When the last payment break expires after August 31, it is highly unlikely that most borrowers will have to resume full payments by then. It’s highly likely there won’t just be another pause in payments, but a splashy, expansive loan forgiveness – one of the largest transfers of wealth in US history, by presidential decree. .

Biden — subtlety is not his forte — is likely assuming that the gratitude of up to 41 million recipients will outweigh the resentment of borrowers who skimped to pay their debts. Biden is probably right. Comedian Lily Tomlin certainly was when she said, “No matter how cynical you get, it’s never enough to keep up.”