Biden’s Student Loan Forgiveness Is A Recipe For College Price Inflation

On Monday, President Biden announced the launch of the federal portal for student loan “forgiveness” by indulging in some trademark malarkey—offering up massive, irresponsible spending as an act of courage. Waving away concerns about cost or fairness of his $400 billion plan, Biden insisted “we are able to afford this student loan relief” and declared “I will never apologize for helping working Americans and middle-class people.” The President who pledged to restore respect for the rule of law dismissed critics of his legally suspect maneuver as mean-spirited hypocrites.

There are all manner of things a non-hypocritical skeptic might say in response. They might question the fairness of Biden’s plan, which offers up to $20,000 to 40 million college-goers, despite the fact that college graduates earn much more than high school graduates over the course of their working lives. They might note that needy borrowers already have access to the generous Public Service Loan Forgiveness program and income-driven repayment options designed to protect those who’ve fallen on tough times.

They might point out that Biden’s plan is a ham-handed attempt to use the 2003 HEROES Act, crafted to aid military personnel “in connection with a war or other military operation or national emergency,” for a completely unrelated purpose. They might take issue with Biden announcing this as an emergency pandemic measure, within weeks of his declaring the COVID pandemic was over (and several months after he moved to retire COVID-era emergency protocols on the southern border because his administration insisted that the emergency was over).

After all, Biden’s plan is regressive, steering vast sums to college-goers who, on the whole, are disproportionately well-off. It’s inflationary, pumping hundreds of billions of unearned dollars into the economy without even a pretense that the outlays are paid for. It’s unnecessary, given that income-driven repayment and loan forgiveness options already exist to accommodate borrowers in need.

But the White House is pressing on in the face of an array of lawsuits. Biden’s hope is that no individual or organization has standing to challenge Biden’s interpretation of the HEROES Act or his now-you-see-it, now-you-don’t claim of emergency pandemic powers. If the courts do grant standing to any of the plaintiffs, it’s a safe bet the fight will eventually make its way to the U.S. Supreme Court, where several similarly “creative” assertions of open-ended emergency power have already been struck down (as with the eviction moratorium or OSHA’s vaccinate mandate).

Even those who stand to benefit from Biden’s plan should be (at least) half-hoping the legal challenges succeed. Because whatever the short-term payoff for beneficiaries, the longer-term effects are likely to be immensely destructive—especially for those who may have college-going children, grandchildren, friends, relatives, or neighbors. Biden’s scheme is a poster child for moral hazard. It threatens to make suckers out of those who’ve repaid their loans, attended cheaper institutions, or worked through college, while encouraging future students to borrow more and colleges to be ever more aggressive about raising tuition.

As my AEI colleague Beth Akers, author of Making College Pay, has cautioned, “My concern is that if we send the message to students that they don’t need to pay back the loans that they take out, we encourage them to borrow more, and they will pay higher prices.” That possibility is all too real, as progressive activists have already made clear that they regard this $400 billion payout as little more than a start, while Hill Democrats have quietly suggested that, if they have the votes, another round of forgiveness would be on the agenda for 2023 or 2025.

Biden’s scheme manages to get all the incentives wrong. It encourages borrowing and makes it easier for colleges to raise prices. Given the cheery possibility that borrowing costs might be wiped away, college-goers will have an excuse to attend that pricier school, not work evenings, and go ahead and pursue that master’s degree. And colleges have every reason to nudge students to borrow more, via reassuring winks and nods. While $20,000 won’t cover even one year of a pricey college or graduate program, it’s easy for the vague allure of free money to nudge such details aside.

In response to the lawsuits, Biden’s Department of Education has initiated a series of arbitrary adjustments. It has retroactively changed the rules of the just-announced program and excluded about four million borrowers who hold older Federal Family Education Loan Program loans, making clear how ad hoc and extra-legal the whole exercise is.

President Biden could have worked with Congress to tackle college costs. He could have included loan forgiveness in his $1.9 trillion COVID package in spring 2021. Instead, he has chosen to abuse his office to give away vast sums of money in a manner sure to aggravate the spiraling cost of college. If the President thinks this constitutes fighting for the middle class, he might want to think again.