WASHINGTON, D.C. – President Joe Biden announced today that the Federal Government will forgive $10,000 in student loan debt for individuals with an annual income under $125,000 and households earning less than $250,000. Meanwhile, Pell Grant recipients are eligible for $20,000. The President also announced that the pause on student loan repayment will continue through the end of the year and undergraduate loans repayment can be capped at 5% of the individual’s monthly income.
The move essentially transfers the financial burden of repaying student debt from the individual borrower to all American taxpayers, including those who have already paid off their own student loans, never took on any debt from college or never participated in higher education.
$300 BILLION FOR SHORT-LIVED RELIEF
The Wharton School of the University of Pennsylvania estimates the move will cost $300 billion and that wealthier individuals and families will benefit most from the plan.
“Between 69 and 73 percent of the debt forgiven accrues to households in the top 60 percent of the income distribution,” Wharton said.
Given the fact that current and future students will continue accumulating student debt, the current $1.6 trillion behemoth of outstanding student loan debt would return within about four years, according to projections from the Committee for a Responsible Federal Budget. The Committee also says the cost of the forgiveness plan is almost ten times greater than the GDP growth and will increase inflation.
IS IT CONSTITUTIONAL?
The long-anticipated move has previously raised questions of legality. Article I, Section 9, Clause 7 of the U.S. Constitution says, “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.”
“If that provision were designed to prevent anything, it would be a tax-payer funded write-off of $321 billion worth of obligations to the government,” Washington Post columnist Charles Lane wrote in May.
Even House Speaker Nancy Pelosi threw cold water on the idea last summer.
"People think that the President of the United States has the power for debt forgiveness; he does not," Pelosi said. "He can postpone, he can delay, but he does not have that power. That has to be an act of Congress."
SENDING THE WRONG MESSAGE
Beth Akers, a senior fellow at the American Enterprise Institute, believes Biden’s forgiveness plan will only exacerbate the problem. Akers told MSNBC that most economists consider the move “regressive.”
“The president is sending the wrong message to future borrowers who will likely expect their own bailout in the future,” she said. “Americans may borrow and pay more for college as a result.”