Forgoing federal loans is unfair to taxpayers
The 31st President of the United States, Herbert Hoover, once said, “Blessed are the young, for they shall inherit the national debt. Hoover experienced a significant economic downturn – the Great Depression – which began in the first year of his presidency. Unlike his successor, President Franklin D. Roosevelt, Hoover “strongly condemned programs that indebted the government.”
Sadly, Roosevelt took over from Hoover, and his ominous quote is more relevant than ever. The current debt of the United States stands at over $30.3 trillion, or $91,157 per person.
Yet Congress wants to dramatically increase that debt with various student loan “solutions” that would either pay off student loan debt entirely or forgive some of that debt.
The various proposals are not cheap and will add to the growing national debt. If the federal government decided to cancel all federal loans, taxpayers would be liable for $1.6 trillion. The “moderate” plan to forgive up to $50,000 would cost around $1 trillion. Finally, President Biden’s proposal to pardon up to $10,000 would cost taxpayers $373 billion.
Article I of the United States Constitution gives Congress the power to raise revenue, and taxes “shall be uniform throughout the United States”. Specifically, student loan debt forgiveness does not take into account those who have no debt, nor those who have paid off their debt. Moreover, it does nothing to address the deeper issues around student loans and the cost of education.
More Americans 25 or older have a bachelor’s degree now than 10 years ago. In fact, 27.5% in 2009-2010 had these degrees, compared to 32.1% in 2015-2019. In 2020, among Americans aged 25-29, 39% reported a bachelor’s degree or higher and only 9% reported a master’s degree or higher.
Alternatively, 95% said they had a high school diploma and 50% said they had an associate’s degree or higher.
Even if more than two-thirds (67.9% of Americans 25 and older) were unlicensed in 2019 (the most recent figure), all taxpayers would be subject to paying off huge student loan debt. . In 2021, a higher education expert estimated that the $10,000 cancellation plan would represent $2,000 in additional taxes for the “average borrower.” The $50,000 plan would equate to $10,000 in additional taxes per taxpayer, or (ironically) more borrowing.
Not only are these solutions fiscally unsound, but none of the three major proposals solves the real problem.
Paying off student loans (in whole or in part) asks American taxpayers to pick up a bigger chunk of the bill to pay for outrageous federal education funding programs that have helped drive up the costs of a college education.
In 2010, then-President Barack Obama signed the Health Care and Education Reconciliation Act, which dramatically changed student loan financing. The legislation ended the process by which the government supported private banks with subsidies for federally guaranteed student loans. Instead (as of 2014), federal student loans would be administered by the US Department of Education.
In a press release at the time the 2010 legislation was passed, Mr. Obama said that by “ending unnecessary subsidies” about $68 billion would be saved by the federal government for “affordability universities and deficit reduction”.
Interestingly, this change in lending has essentially made the federal government the largest student lender in America. In 2015, a year after the change took effect and when student loan debt stood at $1.21 trillion, the federal government became “the largest holder of non-revolving consumer debt, with 932 billions of dollars owed to it.
In 2015, the federal government held about 70% of student loan debt. As of July 2021, the federal government held 92% of student loans, and the total outstanding federal student loan debt was $1.61 trillion.
But having the federal government take out student loans hasn’t translated into savings for students. In the 2010-2011 school year, the average annual cost of tuition at a public four-year institution was $8,300. In 2019-20, this cost had increased by 13.3% to $9,400. Private for-profit schools saw only an 8.2% tuition increase, from $17,000 in 2010-11 to $19,100 in 2019-20. Among two-year institutions, private for-profit schools saw a tuition decline of 3.1% over the same period, while public two-year institution tuition increased by 18 percent. 8%.
Rather than pouring more money into the student loan problem, Congress should reform previous legislation and seek solutions from private institutions that clearly have better control over rising college costs. Despite all the money spent on college education, it’s a shame that no one, including Congress and young adults, can budget effectively.
• Lindsey Stroud is director of the Consumer Center of the Taxpayers Protection Alliance.